US & World Daily Markets Financial Briefing 18-04-2008

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Wall Street gains as investors weigh Citi, Google results

NEW YORK - Wall Street jumped Friday as results from companies like Citigroup Inc. and Google Inc. helped ease investor anxiety about the health of corporate profits.

Investors have been worried that recent data indicate a slowing economy, which would cut into profit growth at some of the nation's biggest companies. But, results so far have shown that earnings are, for the most part, coming in within expectations.

Citigroup, the nation's biggest bank, encouraged investors because there were no surprises in its report. The New York-based bank posted a $5.1 billion loss during the first quarter because of poor bets on mortgages and leveraged loans -- still significantly less than the $10 billion loss suffered in the previous quarter.

Late Thursday, Google posted first-quarter earnings and revenue growth that easily surpassed analysts' predictions. There had been some speculation on Wall Street that the search engine would turn in sluggish results because of slower online advertising revenue.

In the first hour of trading, the Dow Jones industrial average jumped 175.02, or 1.39 percent, to 12,795.54.
Broader stock indicators also rose. The Standard & Poor's 500 index increased 19.48, or 1.43 percent, to 1,385.04, and the Nasdaq composite index rose 43.61, or 1.86 percent, 2,385.44.

Oil prices slipped below $114 a barrel amid thin trading volumes as the U.S. dollar held its ground against the euro. Light, sweet crude fell $1.17 to $113.69 per barrel on the New York Mercantile Exchange.

Investors will also be monitoring speeches from several Federal Reserve officials, including Richmond Fed President Jeffrey Lacker. Philadelphia Fed President Charles Plosser said in prepared remarks that it is reasonable to worry about rising prices.

After posting the stronger-than-expected results, Citigroup rose $1.32, or 5.5 percent, to $25.35, while Google surged $80.53, or 18 percent, to $530.07.

In other corporate news, Xerox Corp. said a litigation charge left it with a loss of $244 million in the first quarter. But, its results excluding the one-time item matched Wall Street expectations.

Heavy equipment maker Caterpillar Inc. said demand for its global mining and energy products pushed its first-quarter earnings up 13 percent, and affirmed 2008 guidance. The results surpassed Wall Street projections. Caterpillar rose $3.38, or 4.3 percent, to $81.97.

Schlumberger Ltd. rose $1.80 to $97.10 after reporting its first-quarter net income rose nearly 14 percent from a year ago.

Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where volume came to 375.4 million shares.

The Russell 2000 index of smaller companies rose 8.98, or 1.27 percent, to 717.04.  Britain's FTSE 100 added 1.25 percent, Germany's DAX index rose 2.26 percent, and France's CAC-40 rose 1.96 percent.

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Dollar, pound rally as Fed, BoE unlink rates policy from markets action

The dollar and pound rebounded across the board Friday as their respective central banks moved to differentiate their support for mortgage and credit markets from monetary policy, allowing them to sound more hawkish on inflation.

The Bank of England is finalising a plan that would see it accepting mortgage-backed assets in exchange for Treasury gilts in order to kick-start interbank lending back to life, a measure adopted earlier by the U.S. Federal Reserve.

This program is allowing rate-setters to 'de-couple' their monetary policy from their support for financial markets and mortgage lending.

"There is a different strategy being used which is to differentiate calming mortgage markets from monetary policy," said Hans Redeker, head of forex strategy at BNP Paribas. He said that comments from Fed members Richard Fischer and Jeffrey Lacker overnight have been relatively more hawkish considering the soft U.S. data this week, while BoE chief economist Charlie Bean on Thursday night stressed the dangers of inflation.

"I am reasonably sanguine about the implications of any fall in house prices for consumer spending," said Bean, suggesting the falls in property values are unlikely to push him to vote for another rate cut next month.

The view that the BoE, like the Fed before it, will act directly in financial markets to improve interbank lending and mortgage funding has caused bond yields to rise sharply in the US and UK this week, making these currencies more valuable.

Redeker said that the reallocation of reserves in to the euro made by central banks over the past few weeks has not been happening Friday, which is causing a sharp unwinding of the single currency's rally in favour of the dollar and pound.

The euro has been supported by fundamentals as well -- with price indicators hitting new record levels this week -- and has prompted speculation of an intervention to limit its rally.

Eurogroup chairman Jean-Claude Juncker on Thursday said markets had not heeded the warnings in the Group of Seven's communique, which said that an excessive rise in the euro was not desirable.

But the chances of an intervention are slim, experts believe, so long as the European Central Bank remains worried about inflation and uses hawkish rhetoric.

"Today's fall in the euro is not about intervention, this is a dollar and pound story," said Redeker at BNP Paribas.

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Euroshares up midday; banks in focus after Citi Q1; techs, chemicals rally

Europe's leading exchanges extended gains in midday trading, following encouraging results from banking giant Citigroup, and with techs and chemicals outperforming on the back of consensus-beating results from Google and Norway's Yara International.

At 12:00 p.m., the DJ STOXX 50 was up 52.63 points or 1.69 percent to 3,169.21, while the DJ STOXX 600 added 4.46 points, or 1.42 percent, to 317.63.

Shares in Royal Bank of Scotland underperformed, up 0.2 percent, amid speculation the group is to announce a massive rights issue.

The Financial Times, citing people familiar with the matter, said the bank is stretched by its bid for ABN Amro and is expected to unveil its plan at its annual meeting Wednesday.

In addition, Barclays shed 0.4 percent. "There is talk in the market that Barclays is considering rushing through a 10-billion-pound rights issue -- supposedly scheduled for Monday -- to beat one from RBS," a London-based trader said.

Also in the sector, Bankinter SA added 2 percent after it said first-quarter net profit came in at 73.65 million euros, down 13.5 percent, but ahead of analyst forecasts of around 70 million euros.

Net interest revenue was also at the top end of expectations, having risen 7.44 percent to 153.78 million euros. Analyst forecasts ranged from 151 million euros to 153 million euros.

Tech stocks recovered notably Friday, up 1.86 percent according to the DJ STOXX 600 for the industry, following a 6 percent decline the previous day.

Solid earnings and guidance from Google overnight lifted the mood in the sector, and United Internet added 1.93 percent, while SAP was up 1.56 percent. SAGE Group was trading 3.3 percent higher and ASML gained 2.60 percent.

Market strategist Elin Ottosson at Cazenove remained cautious on the sector, however, noting that it is still outperforming in terms of price earnings multiples. "We are expecting earnings growth in the region of 6 percent this year for the sector and 17 percent for 2009 and this might look a bit rich," she said.

Chemical shares were also among the top performers, up 2.13 percent in aggregate, largely pulled higher by a 14 percent surge in Yara International stock after the group beat forecasts with its first-quarter results.

Carnegie analyst Henrik Sinding said the results were "very strong indeed", beating his own forecasts by more than 50 percent. "They were blow-out numbers, with very few speciality items so that means they were very clean," he said.

Staying with earnings, Bic shed 6.69 percent, after the group disappointed investors with a sharper-than-expected fall in first quarter sales and profits. The consumer goods group was hit by a slowdown in the United States and investments in its brand.

Over in the German market, exchange operator Deutsche Boerse shed 3.61 percent amid vague rumours of a profit warning, which analyst however discarded.  

In M&A-related stories today, Fresenius Medical Care rallied, up 5.26 percent, on the back of rumours that U.S. peer Baxter International is mulling a bid for the dialysis specialist.

France Telecom shed another 1.41 percent as the group confirmed its "interest" in TeliaSonera but said that there are "no negotiations at this stage". The news sparked another downgrade at Dresdner Kleinwort to 'sell' from 'hold'.

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Asian stocks turn mixed; Tokyo, Seoul markets reverse losses

Stock markets in Asia turned mixed Friday as bargain-hunters stepped in after early losses triggered by Wall Street's lackluster performance overnight due to weak manufacturing data and corporate earnings worries.

"The market seems to have almost priced in writedowns from subprime-related mortgages by U.S. banks, and investors may turn their focus from the credit crunch to the real economy," said Shinko Securities market analyst Yutaka Miura.

"But I doubt stocks will rise further from the current levels, with incentives for short-covering running short," Miura said. Japan's benchmark Nikkei 225 Stock Average closed higher, reversing early losses after a weaker yen encouraged buying of Japanese exporters.

The blue-chip Nikkei ended 0.6 percent higher at 13,476.4 points, and the broader Topix rose 0.8 percent to 1,304.06.

South Korean shares ended firmer on late bargain-hunting. The KOSPI index closed 0.2 percent higher at 1,771.90.

Singapore's Straits Times Index ended down 0.1 percent at 3,124.87.

Australia's S&P/ASX 200 closed 1.6 percent lower at 5,429.7 and the All Ordinaries index 1.5 percent lower at 5,504.10 following losses in the resource sector after a contraction in commodity prices.

Hong Kong's Hang Seng Index slipped at the end of an erratic session that saw early losses on reports that investors are selling up to HK$6.5 billion worth of shares in three locally-listed companies.

The Hang Seng closed 0.3 percent lower at 24,197.78 points after the Shanghai market slumped.

The Shanghai composite index lost almost 4 percent to end at 3,094.67 points on lingering worries about the earnings outlook of major Chinese companies. Index leader PetroChina led the decline as its earnings prospects this year are clouded by losses in its refining operations and a levy that it pays the government for its oil output.

Elsewhere, the Philippine composite index closed 0.8 percent lower at 2,915.67 points, while the Malaysian composite closed up 0.9 percent higher at 1,267.65.

Indonesia's composite index closed up 0.3 percent at 2,349.27 while Taiwan's weighted index closed down 0.18 percent at 9,074.34.

Indian markets remained closed today due to public holiday.

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Gold falls nearly 4 pct to 1-week low after Citi earnings boost dollar

LONDON  - Gold fell by nearly 4 percent to a one-week low in early afternoon trade, in line with a broad-based commodities sell-off, as the dollar rallied after well-received first-quarter results from Citigroup Inc.

Hawkish talk from the Federal Reserve overnight and higher U.S. bond yields are also boosting sentiment towards the greenback, further pressuring gold.

The precious metal tends to move in an inverse relationship with the dollar. A stronger greenback reduces the metal's appeal as an alternative investment, and makes dollar-priced gold more expensive for holders of other currencies.

Spot gold traded to an intraday low of $906.48 an ounce, its lowest level since April 10. By 2.31 p.m., gold was trading down at $908.98 an ounce against $940.20 in late New York trade on Thursday.

A sell-off in oil -- a rise in which is often a precursor to rising inflation, against which gold is bought as a hedge -- is also pressuring the precious metals, analysts said.

Crude prices fell by over $2 a barrel in New York in early afternoon trade.

"Gold now threatens to undo this week's handsome gains and could finish at a net loss, should it settle beneath $925," said Kitco Bullion Dealers analyst Jon Nadler. "The apparent lack of conviction and the stalls in momentum seen this past week were seen as problematic by some analysts," he added.

The dollar, whose weakness has been the main driver of gold's rally over the last six months, rose strongly this morning after first-quarter earnings from Citigroup Inc.

The bank's numbers, which came in marginally less weak than expected, have encouraged a feeling that there may be light at the end of the tunnel for the U.S. equities market, analysts said.

Tough trading conditions over the last six months have benefited gold, which is seen as a safe store of value at a time of volatility in other asset prices.

"Equity markets are trading in the black this morning as investors increasingly gravitate towards the view that the worst of the financial markets difficulties are behind the main players," said JP Morgan analyst Michael Jansen. "A view that the credit market crisis is fading would be broadly US dollar-supportive and help to chip away at the gains made in commodity prices," he added.

Among other precious metals, platinum was trading lower at $2,016 an ounce against $2,040 in late trades on Thursday, while palladium slipped to $448 an ounce from $456. Silver fell to $17.55 an ounce from $18.29.

At 12:45 p.m., London Metal Exchange copper for three-month delivery was trading at $8,535 per tonne against $8,610 at the close Thursday.
  
Copper gave up the gains it made earlier after reports that stockpiles had declined, reflecting losses across the base metals, with the exception of tin. The red metal has dipped by over 4 pct since hitting an all-time high yesterday amid fears that supply of the red metal from major producer Chile could be crimped by an ongoing strike there.

Meanwhile tin for three-month delivery was quoted at $21,650 per tonne against $21,350 per tonne. Yesterday the metal, which is used in electro-plating, rallied to a new high for a third successive day, as falling stockpiles and expectations supply from major producers China and Indonesia will fall fuelled buying.
   
Among other metals traded on the LME, lead for delivery in three months was steady at $2,810 per tonne, while zinc edged down to $2,295 per tonne from $2,315 and nickel sank to $29,200 per tonne from $29,250. Aluminium meanwhile fell to $3,038 per tonne against $3,060.

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