US & World Daily Markets Financial Briefing 19-08-2008

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US STOCKS-Losses mount on inflation, credit jitters

NEW YORK - U.S. stocks extended losses on Tuesday as a report showing that underlying inflation is picking up speed added to worries about the economy, and fears of more credit losses sunk financial shares for a second straight day.
      
Data pointing to further deterioration in the housing market added to the negative tone, along with a brokerage's forecast of more writedowns at Lehman Brothers , a U.S. investment bank.
      
The Dow Jones industrial average slid 120.34 points, or 1.05 percent, to 11,359.05. The Standard & Poor's 500 Index tumbled 12.19 points, or 0.95 percent, to 1,266.41. The Nasdaq Composite Index fell 24.49 points, or 1.01 percent, to 2,392.49.

U.S. builders slowed construction on new homes in July to the lowest annual rate in sixteen years, and there is little sign of an immediate turnaround as building permits for single-family homes fell to their lowest annual rate in 26 years.

The Commerce Department said U.S. July housing starts fell 11% to a 965,000 annual rate, the lowest level since March 1991.

Economists polled by Thomson's IFR Markets were expecting starts to drop to an annual rate of 950,000 from the originally reported 1.066 million June rate. Commerce upwardly revised that June rate to 1.084 million annual units.

New construction of single-family homes, a better and more stable indicator of new home trends, fell 2.9% in July to an annual rate of 641,000 units, the lowest level since Jan. 1991. Starts of homes for two or more families fell 23.6% in the month to an annual rate of 324,000 units.

Housing starts fell in all regions of the country except for the Midwest, where starts rose 10% in the month. Starts in the South fell 8.2% to the lowest annual rate since Sept. 1991. Starts in the West fell 8.2% to the lowest annual rate since May 1982.

Building permits for new home starts in July were down 17.7% to an annual rate of 937,000 units. Single-family permits fell 5.2% to 584,000 annual units, the lowest level since Aug. 1982. Multi-family permits fell 32.4% to 353,000 annual units.

Homes still under construction fell 1.6% overall and 3.5% for single-family homes -- yet another indication of builders cutting back on home construction in an effort to cut back on an over ten months' supply of excess inventories.

The number of homes completed in the month fell 8.7% to 1.035 million annual units. Single-family homes completed in the month fell 7.2% and multi-family homes fell 13.5% in July.

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Forex - Dollar recovers on dip in oil prices, weak euro zoen data

LONDON - The dollar was up as oil prices dipped again and amid ongoing concerns about economic prospects around the world, especially in Europe.

Analysts said the latest fall in commodity prices, with oil dipping below $112 a barrel, will help ease inflationary pressures, paving the way for central banks, like the European Central Bank and the Bank of England, to cut interest rates.

By contrast, the U.S. Federal Reserve has already cut borrowing costs aggressively, and is not expected to do so again, thereby helping the dollar to recover after months of heavy selling.

"The strength in the dollar index has little to do with dollar strength but more the weakness of the other currencies," said Michael Klawitter, senior currency strategist at Dresdner Kleinwort in Frankfurt.

"The market's focus is just very one-sided. At the moment the market has decided to focus on the weakness of the euro zone and hasn't taken a balanced view of risks in the U.S.," he added.

Making things worse for the euro and in turn helping boost the dollar was a drop in a key index of German confidence.

The ZEW current conditions index posted a steep fall in August to -9, the lowest level since February 2006, as realisation that German economic conditions have worsened considerably finally hit home.

The euro was at $1.4684, having earlier hit a six-month low of $1.4628. The pound was at $1.8607. Elsewhere, the yen was little changed by the Bank of Japan's widely-expected decision to leave its key interest rate on hold at 0.5 percent and its prediction of continued "sluggish" growth in Japan, the world's second largest economy.

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UK and European stockwatch highlights to 10:10 BST

FRANKFURT - Shares of Solarworld AG. led to rise the TecDAX index in midmorning trade on market talk that General Electric may be interested in buying the company.

ZURICH - Shares in Ciba Holding AG sank in midmorning trade, dragged lower by concerns that rising raw materials costs, which dented second quarter results, will continue to weigh heavily on the company's earnings through the rest of 2008, analysts said.

BRUSSELS - Shares in Option NV. surged on its deal to supply Taiwanese laptop manufacturer Compal Electronics Inc. with 3G embedded modules for new mobile internet devices.

LONDON - Shares in HBOS Plc. fell 4.5 percent midmorning as investors moved out of financials following a sector sell-off in the U.S.

PARIS - Shares in Sperian Protection rose after the personal protection equipment maker said it has agreed to acquire Combisafe International AB from Sweden's Fairford for 590 million Swedish crowns or 63 million euros.

LONDON - Findel Plc. were higher in early trading after group sales came in 2 percent ahead of last year, with Citigroup retaining its 'buy' stance and target of 190 pence, market sources said.

AMSTERDAM - Shares in Ordina NV plunged as much as 17 percent after the Dutch IT services group announced weak first half profits and gave a disappointing full-year margin outlook.

LONDON - Shares in Brixton Plc. headed south in early morning trade following the release of its first-half results which saw the company's net asset value tumble in challenging market conditions, prompting Merrill Lynch to repeat its 'underperform' recommendation and 178 pence target.

Shares in Lonmin Plc. were lower early morning after Investec downgraded the group to 'hold' from 'buy' with a raised price target to 3,750 pence following the Xstrata Plc. bid situation, market sources said.

SG Securities has raised its rating for IMI Plc. to 'hold' from 'sell' while maintaining its 457 pence price target for the UK engineering group. Shares in Woolworths Group Plc. were lower in early morning trade after HSBC downgraded the group to 'underweight' from 'neutral' with an unchanged target of 6.1 pence, market sources said.

BRUSSELS - Shares in Nyrstar NV. sunk in early deals following disappointing first-half results for the zinc group.

LONDON - Goldman Sachs has upgraded DSG International Plc. to 'neutral' from 'sell', Next Plc. to 'buy' from 'neutral' and Kesa Electricals Plc. to 'buy' from 'sell', market sources said. Goldman Sachs has upgraded Carrefour and Delhaize Group to 'buy' from 'neutral' and Metro AG. to 'neutral' from 'sell', market sources said. 

LONDON - Morgan Stanley has initiated coverage on Rentokil Initial Plc. with an 'overweight' rating and 115 pence price target, implying 48 percent upside potential for the stock.

JP Morgan has cut Greene King Plc. and Punch Taverns Plc. to 'neutral' from 'overweight', Marstons Plc. to 'underweight' from 'neutral' and upgraded JD Wetherspoon Plc. and Restaurant Group Plc. to 'overweight' from 'neutral' and Mitchells & Butlers Plc. to 'neutral' from 'underweight', market sources said.

LONDON - Citigroup has started GEA Group AG. with a 'buy' recommendation and target of 26 euros, market sources said.  JP Morgan has downgraded William Hill Plc. to 'underweight' from 'overweight' and Ladbrokes Plc. to 'underweight' from 'neutral' with respective price target cuts to 285 pence from 465 pence and to 200 pence from 345 pence, market sources said.

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Asian stock market summary

JAPAN
The benchmark Nikkei 225 Stock Average declined 2.3 percent to 12,865.05, the lowest close since July 18, as investors fretted over the health of financial companies after media reports pointed out further troubles in the sector.
   
Investors were also cautious ahead of the release later on Tuesday of key U.S. economic data such as the July producer price index and housing market data. The broader Topix index fell 2.2 percent to 1,235.54.

SOUTH KOREAN
The Korea Composite Stock Price Index closed down 1.68 percent to 1,541.41, with renewed economic and credit worries sending exporters and financials lower, while STX Group units fell across the board on concerns about the group's liquidity.

AUSTRALIA
The benchmark S&P/ASX 200 lost 118.6 points to close at 4,866.4, with financial firms declining on concerns about the health of their global peers, while weak metals prices weighed down on the miners.

CHINA
The benchmark Shanghai Composite Index closed up 1.06 percent at 2,344.47, rebounding from a 5.34 percent drop Monday, with power producers and banks leading the gains.
   
The Shanghai A-share Index was up 1.06 percent at 2,461.04, while the Shenzhen A-share Index rose 1.40 percent to 697.28. The Shanghai B-share Index rose 0.05 points to 151.41, while the Shenzhen B-share Index gained 0.85 percent to 374.58.

TAIWAN
The weighted index closed down 0.32 percent at 6,978.60, as some bargain-hunters stepped in after early sharp falls following Wall Street losses and renewed credit concerns.
   
The food sector rebounded, while commodity-related stocks were mostly down after oil prices retreated. Financials saw a mild bounce, but trade was cautious amid an ongoing investigation into alleged money-laundering by former President Chen Shui-bian's family.

HONG KONG
The Hang Seng Index slumped 446.30 points or 2.1 percent to 20, 484.37, its lowest closing level since August 17, 2007, when the index finished at 20,387.13.

INDIA
The main stock index, the 30-share Sensex of the Bombay Stock Exchange (BSE), closed down 101.93 points, or 0.70 percent, at 14,543.73 and the broader 50-share S&P CNX Nifty of the National Stock Exchange (NSE) closed down 0.56 percent at 4,368.25 points.

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Oil falls below $112 after storm moves on

LONDON - Oil prices fell to around $112 on Tuesday after a tropical storm in the Gulf of Mexico avoided oil and gas installations.

U.S. crude  was 71 cents lower at $112.16 a barrel by 0916 GMT. London Brent crude fall 73 cents to $111.21.

Oil fell for the fourth trading day as Tropical Storm Fay, the sixth storm of the 2008 Atlantic season, swept over Florida.

It did not reach hurricane strength or cause major disruption in the Gulf of Mexico, the production hub of the U.S. oil industry.

After the price of oil has fallen about 24 percent from a record high above $147 hit in mid-July, investors were split on the outlook. "(The market is) evenly divided between those that think we go up and those that think we go lower," a broker said.

A fall in oil use in the United States and other developed countries as economies slow continued to pressure prices, while Chinese demand growth is still robust.

Dallas Federal Reserve Bank President Richard Fisher said on Monday that Chinese economic growth can deliver a potentially massive boost to global energy demand with clear implications for long-term oil prices.

Investors who rely on charts and historical data to map market direction closely watched the $110-$111 area. They said oil prices might rebound from there but if prices should fall below the level, further losses could be expected.

"There is strong support for prices to drift lower towards $100 a barrel. We are only about $10 a barrel away, and I won't be surprised to see $105 a barrel by next month," said Jonathan Kornafel, Asia director at U.S.-based options trader Hudson Capital Energy.

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