US & World Daily Markets Financial Briefing 18-07-2008

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Wall Street heads to higher open after Citi report

NEW YORK (AP) -     Wall Street headed for a higher open Friday after Citigroup Inc. issued a better-than-expected earnings report, offsetting disappointing results from several other big companies.

The nation's largest bank reported a $2.5 billion second-quarter loss due to write-downs tied to deteriorating credit markets. However, that was still better than analysts' forecasts, and it appeared that the Dow Jones industrials would be able to extend their biggest two-day rally since 2002 when trading opens at 9:30 a.m. EDT.

Citi's report followed stronger-than-expected reports from JPMorgan Chase & Co. and Wells Fargo & Co. that helped relieve some of investors' worries about the health of the banking sector. Wall Street has grown concerned that souring mortgage debt would force some banks to go under. The Dow had triple digit gains Wednesday and Thursday in response to the banks' reports.

Futures began the day lower after Google Inc., Merrill Lynch & Co., and Microsoft Corp. had all posted quarterly results that missed analysts' expectations after the closing bell on Thursday. Meanwhile, oil prices moved higher after falling $15 over three days amid news of an output cut in Nigeria.

Dow futures rose 40, or 0.32 percent, to 11,441.

Standard & Poor's 500 index futures added 5.30, or 0.42 percent, to 1,258.70. Nasdaq 100 index futures rose 1.25, or 0.07 percent, to 1,841.00.

Bond prices slid on Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.06 percent from 4.00 percent from late Thursday.

The dollar was mixed against other major currencies, while gold prices fell.

Oil prices moved higher. Light, sweet crude rose $1.49 to $130.78 in premarket electronic trading on the New York Mercantile Exchange. Crude oil had declined $15 over straight days, feeding perceptions that the boom in raw materials may be cooling off.

With no economic data slated for release Friday, investors weighed a slew of earnings reports in recent days.

Honeywell International Inc. reported Friday that second-quarter earnings rose 18 percent, driven by higher sales in its aerospace and building control systems businesses. Results surpassed forecasts, and the company also boosted its 2008 forecast.

Toy maker Mattel Inc. said its second-quarter profit fell by nearly half, hurt by lower global demand for Barbie toys and higher costs, but results still beat Wall Street expectations. The maker of Barbie, Hot Wheels and Fisher-Price toys reported quarterly profit dropped 48 percent to $11.8 million.

Israeli drugmaker Teva Pharmaceutical Industries Ltd. said Thursday it will buy rival generic drug company Barr Pharmaceuticals Inc. for more than $7 billion, in a move to expand its presence in U.S. and Eastern European markets. Teva will also assume $1.5 billion of Barr's debt.

Google's earnings growth bogged down more than investors anticipated during the second quarter, raising worries that the ailing U.S. economy is starting to sap the Internet search leader. The company missed Wall Street projections.

Merrill Lynch reported it lost $4.89 billion during the second quarter, hurt by almost $10 billion of write-downs and charges. The world's largest brokerage also sold its stake in news and data provider Bloomberg LP, and will sell its stake in First Data Services Inc., to raise capital.

Microsoft reported fiscal fourth-quarter profit jumped 42 percent -- or 13 percent factoring in a hefty charge a year ago. However, it missed Wall Street projections.

Overseas, Japan's Nikkei stock average fell 0.65 percent. In morning trading, Britain's FTSE 100 rose 1.16 percent, Germany's DAX index added 1.63 percent, and France's CAC-40 rose 0.70 percent.

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Dollar stays well bid as focus remains on equities

LONDON - The dollar stayed well bid as focus stayed firmly on developments in equities, with Thursday's steep gains on Wall Street helping the greenback, although gains were limited by expectations that U.S. share prices may open lower.

The dollar's gains were more apparent against the yen and the Swiss franc while the euro was stuck in the mid $1.58 level, having hit a record high of 1.6040 earlier in the week amid the troubles faced by U.S. mortgage giants Fannie-Mae and Freddie-Mac.

"The sharp rally in equities, led by financials and supported by upward surprises in earnings releases, has been broadly supportive of the dollar against developed market currencies, said Naeem Wahid at HBOS.

Falls in oil prices also brought some relief to wider markets as the declines will help limit inflationary pressures. Wahid said he remains cautious of the current rally in equities.

"The ability of this equity market rally to be sustained in an environment of tightening credit conditions, weakening housing market, soft consumer confidence and a rising unemployment rate is low," he added.

Indeed, Matthew Foster-Smith at IFR Markets said equities may well turn lower today. "U.S. futures are also indicating a lower open into the North American session so this will reduce the risk of significant euro weakness and an increase in follow-through in the short-run," he said.

The pound was dented by a steep deterioration in UK public finances.

The office for National Statistics revealed that public sector net borrowing, the government's preferred measure of the public finances, stood at 9.2 billion pounds, way ahead of last year's equivalent 6.3 billion and analysts' expectations for a 7.5 billion pound shortfall.

The deficit in June is the highest for the month, traditionally a deficit month, since records began in 1993.

Chancellor of the Exchequer Alistair Darling is now looking increasingly unlikely to meet his fiscal targets for the year with the news that the UK recorded its biggest monthly deficit for June and debt levels are near to breaching the government's self-imposed ceiling.

Additionally, a newspaper report that the Treasury may revise its self-imposed borrowing limits also dented the pound.

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Euroshares move higher midday as Dow seen up; Citigroup Q2 lifts European banks

LONDON - Europe's largest exchanges turned higher midday as the rally in heavyweight banks and financials built steam after a solid report from Citigroup and as the Dow now looks set to tick higher in opening deals.

At 11:57 a.m., the DJ STOXX 50 was up 20.49 points, or 0.75 percent, at 2,808.37 and the DJ STOXX 600 was up 1.09 points, or 1.04 percent, at 277.31.

Back in Europe, banks and insurance groups continued their recovery after Wall Street gains overnight with much better than forecast numbers from Citigroup fuelling the recovery.

Natixis climbed another 7.68 percent as investors continued to cheer news of the group's right issue. SG Secs was the latest broker to upgrade the French banking group. It lifted its rating to 'hold' from 'sell'. BNP Paribas added 4.02 percent. Unicredit added 4.57 percent.

Tech stocks also put in a good showing with telecoms groups still boosted by stronger than expected news from Nokia today and amid hopes that second quarter earnings from Sony-Ericsson will be equally strong.

Ericsson shares were up 1.86 percent, Nokia added another 1.65 percent, Alcatel-Lucent added 3.22 percent

Shares in SBM Offshore stormed 7.58 percent higher, rallying from recent sharp falls as investors cheered news of a significant contract win from BP in Angola.

Shares in L'Oreal dropped 6.3 percent after the beauty products maker cut its guidance for full-year like-for-like sales growth as it revealed smaller-than-expected growth in first-half revenues.

Sector peers, Danone and Unilever fell back 3.08 percent and 2.84 percent. L'Oreal was weighed down further by news RBS cut its rating to 'sell' from 'hold'.

The sector was further rocked by a warning from Belgian supermarket group Delhaize SA. which cut its full-year profit outlook, noting a weakening consumer environment.

Delhaize shares fell 15.65 percent. Ahold dropped 6.43 percent and Carrefour slumped 2.72 percent and Tesco fell back 3.34 percent. Accor moved 1.53 percent lower as the hotels group reported weaker than hoped for second-quarter sales.

Staffing groups were under pressure ahead of earnings from Manpower later as Deutsche Bank believes the market is still dramatically underplaying the level of sales declines that will be seen in the sector.

The broker downgraded Randstad, down 1.78 percent, and Adecco, down 3.9 percent, to 'sell' and reiterated its 'sell' stance on Michael Page, down 1.48 percent.

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Asian stock market summary

Japan
   
The Nikkei 225 Stock Average closed down 0.7 percent at 12,803.70 as investors exercised caution ahead of the U.S. session tonight, where stocks are expected to fall on weaker-than-expected quarterly results from Microsoft Corp and online search leader Google Inc.    

The broader Topix declined 0.9 percent to 1,252.43.

South Korea
   
The KOSPI closed down 1 percent at 1,509.99 as foreign investors cut positions on fear that Citigroup may follow Merrill Lynch in reporting disappointing second-quarter results.

Australia
   
The benchmark S&P/ASX 200 index closed 1.2 percent lower at 4,840.4 as another drop in oil prices hit heavyweight resource firms such as Woodside Petroleum Ltd, while ongoing credit worries pressured financial firms.

China
   
Shanghai A-shares closed higher on rumours that the government will announce market-friendly measures over the weekend.
   
The A-share Shanghai Composite Index closed up 3.49 percent at 2,914.32, and the Shenzhen A-share Index rose 3.04 percent to 864.61. The Shanghai B-share Index closed up 2.52 percent at 211.85 points and the Shenzhen B-share Index closed up 2.17 percent at 459.51 points.

Taiwan
   
The weighted index closed closed down 2.28 percent at 6,815.32 shedding early gains led by financial stocks, as investors opted to cash out after two consecutive winning sessions in response to Wall Street gains and lower oil prices.
   
Philippines

Manila's 30-company composite index dropped 0.2 percent to close at 2,389.52 as investors worried about how much more the central bank will tighten monetary policy following its anti-inflation move in raising key interest rates by half a percentage point this week.

India

The 30-share benchmark Sensitive Index of the Bombay Stock Exchange rose 523.55 points or 3.99 percent to close at 13,635.40 and the broader 50-share S&P CNX Nifty of the National Stock Exchange gained 145.05 points or 3.67 percent to end at 4,092.25. The Sensex has gained 1.23 percent this week, while the Nifty rose 1.07 percent.

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Oil prices in modest rally after dizzying plunge

LONDON  - Oil prices rallied on Friday after three days of heavy falls that pulled the market down by 15 dollars on worries over economic growth and slowing demand, traders said.
   
New York's main oil contract, light sweet crude for August delivery, won back 2.39 dollars to 131.68. London's Brent North Sea oil for September delivery rallied 2.38 dollars to 133.35 dollars per barrel.
   
Over the course of Tuesday, Wednesday and Thursday, New York crude dived by 15 dollars and London Brent almost 13 dollars.   

"Prices were up two dollars a barrel, which appears to be a bounce following the recent steep sell off," said analyst Michael Davies at the Sucden brokerage in London.  "There was some bullish news on the supply side, with a strike in Brazil being expanded to impact all production and refining units of the state run
Petrobras."
   
Prices have plummeted since striking record highs above 147 dollars per barrel at the same stage last week. "What we are seeing is a bounce-back after very sharp falls," agreed David Moore, a Sydney-based commodity strategist with the Commonwealth Bank of Australia.
   
The oil market has tumbled as traders worried that the slowing US economy would translate into lower demand from the world's biggest energy consumer. "The recent huge pull back from new record highs above 147 dollars a barrel have come as the economic mess in the US continues, which has hurt current and future forecasted demand for oil," Davies added. "At the same time there are growing signs that the fall out in the US is impacting the rest of the world, with economic data in Europe, the UK, and Japan worrying and there are even signs of slower growth in India and China, the key demand growth drivers."
   
Prices fell further this week after an unexpected weekly rise in US oil and gasoline inventories. US government data showed oil inventories climbed by 3.0 million barrels in the week ending July 11, despite market expectations of a drop of 2.2 million barrels.

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