US & World Daily Markets Financial Briefing 20-03-2008

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This is the last News Bulletin we will be sending until Tuesday 25th March 2008.

US Stocks at a Glance

Stocks rebound after Wednesday's drop

NEW YORK  -   Stocks rebounded Thursday after the previous session's big drop, with investors eager to take advantage of bargains and cheered by a milder-than-expected drop in manufacturing activity in the Philadelphia region. The Dow Jones industrial average rose more than 120 points.

Earlier Thursday, stocks wobbled due to economic worries after the Labor Department said the number of newly laid off workers filing for unemployment benefits rose last week by a more-than-anticipated 22,000 to 378,000. That level is the highest in nearly two months.

But Wall Street found reason to buy back into stocks when the Philadelphia Federal Reserve said manufacturing activity is dropping in March by less than it did in February, and by less than many economists anticipated.

Investors appeared relieved about the Philadelphia Fed's report, but economic jitters are far from alleviated -- in addition to the disappointing jobless claims report, the Conference Board said Thursday its index of leading economic indicators fell, as expected, for the fifth straight month in February.

The markets are apt to stay volatile for some time, as investors digest news on the economy and the troubled financial sector. "It's the every-other-day theory -- up one day, and down the next," said Scott Brown, chief economist at Raymond James & Associates.

In late morning trading, the Dow rose 121.95, or 1.01 percent, to 12,221.61. Broader stock indicators also advanced. The Standard & Poor's 500 index rose 12.72, or 0.98 percent, to 1,311.14, and the Nasdaq composite index rose 19.46, or 0.88 percent, to 2,229.42.

On Wednesday, stocks plummeted, giving back much of Tuesday's big advance as investors grew worried -- once again -- about the possibility of further troubles at banks with mortgage-related debt on their books. After surging 420 points on Tuesday, the Dow dropped nearly 300.

Bond prices slipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.37 percent from 3.34 percent late Wednesday. Bond trading will be finishing early Thursday ahead of Good Friday, when all the U.S. financial markets will be closed.

In earnings news, Nike Inc. reported late Wednesday a 30 percent gain in quarterly profit, signaling to Wall Street that some companies are faring well despite the credit crisis. Nike said sales overseas increased largely because of the weak dollar.

A plunge in commodities prices also gave investors some hope that lower energy and food prices might boost consumers' discretionary spending. Crude oil fell back below $100 a barrel on the New York Mercantile Exchange, and gold prices sank.

Some energy and metals companies fell on the pullbacks, however. ConocoPhillips fell 20 cents to $73.41; Barrick Gold Corp. fell $2.13, or 4.8 percent, to $43.06; and Newmont Mining Corp. fell $1.53, or 3.8 percent, to $47.17.

In other corporate news, Borders Group Inc., which has been reporting disappointing earnings in recent quarters, revealed early Thursday it may put itself up for sale. The nation's second-largest bookseller said it has lined up $42.5 million in financing so it can continue operating. Borders fell $2.37, or 33 percent, to $4.71.

The dollar rose against other major currencies, while gold prices sank.

The Russell 2000 index of smaller companies rose 10.96, or 1.65 percent, to 675.09. Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to a heavy 1.12 billion shares.

Stock markets overseas were mostly lower. Hong Kong's Hang Seng Index fell 3.5 percent, but the Shanghai Composite Index closed 1.1 percent higher after an early plunge. In afternoon trading, Britain's FTSE 100 fell 1.07 percent, Germany's DAX index lost 0.32 percent, and France's CAC-40 0.35 percent. Japan's markets were closed for a national holiday.

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Forex - Dollar spike up against euro gathers pace ahead of long weekend

LONDON  - The dollar firmed more than a cent against the euro in very light trade as funds lock in profits ahead of the long Easter break.

Though US markets are officially meant to be open tomorrow, activity is set to be light so major banking institutions are locking in profits ahead of the weekend. "Ongoing position clearing by funds is probably still the main force behind the rapid moves, but the motivations behind the sudden liquidation remains unclear," said Geoffrey Yu, currency strategist at UBS.

"Fundamentally, there are signs the market has begun to acknowledge that the rapid move in euro/dollar above 1.50 usd is well overshot and a broader correction was due. In addition, a stabilisation in risk appetite has allowed investors some breathing space to move back into dollar assets," Yu added.

This respite for the dollar has helped ease the pressures on the European Central Bank (ECB) and the Bank of Japan in particular to intervene to cap the dollar's gains against the euro and the yen respectively. Intervention is increasingly popular with South Korean authorities, which have been active in the market to lift the won.

There has been growing talk in recent days that the G7 group of leading industrial nations, plus the Gulf Cooperation Council countries and China, may intervene in the currency markets to bring the dollar's slide to a halt. The last time the G7 intervened was in 2000 when they joined together to prop up the fledgling euro.

The US Federal Reserve's interest rate announcement earlier this week may also be working to underpin the dollar too. Although the Fed cut interest rates by an aggressive 75 basis points to 2.25 pct, market players noted the comment about increased uncertainty over the inflation outlook could indicate a degree of resistance to further rate cuts.

BNP Paribas' global head of FX strategy, Hans Redeker, has gone as far to say that the dollar's "powerful" rebound suggests the dollar may have seen its low against the euro, especially after weak European data earlier today helps support the view that the euro zone economy may be weaker than previously thought.

The provisional, or 'flash', PMI estimate for the euro zone's services sector fell to 51.7 in March from 52.3 in February, while the equivalent reading for manufacturing fell to 52.0 in March from 52.3 in February. "Previous cycles have also seen de-coupling talk, which are always disappointed, and this time there will be no difference," said Redeker.

He added that recent comments from European Central Bank rate-setters Guy Quaden and Yves Mersch suggest a rethink on policy may be taking place at the central bank. "Given that the recent euro advance was entirely supported by opportunistic money market funds, the euro should remain under severe selling pressure against the dollar as it becomes clear that the ECB might have to cut rates earlier than currently priced into money markets," he said.

At present, the markets are not expect the ECB to cut its main refi rate from the current 4.00 pct until mid-summer at the earliest. Elsewhere, the pound firmed following much stronger than expected UK retail sales data. Figures out this morning showed sales rose 1.0 pct between January and February for a year-on-year gain of 5.5 pct, way ahead of analyst forecasts for a more modest 3.7 pct increase.

The numbers are likely to provide markets with some confidence that consumer spending is weathering the economic slowdown so far.

Sterling markets are also on the lookout to see what, if anything, emerges from the Bank of England's meeting today with leading executives of UK financial firms. There is talk that the BoE will help ease the liquidity pressures on firms by scrapping the 100 basis point penalty on its standing facility.

"They should take a leaf out of the Fed's book and essentially allow access to liquidity without penalty," said Neil Mackinnon, chief economist at ECU Group. "The markets will be disappointed if it doesn't hear anything of substance," he added.

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Euroshares open lower, Asia, NY sell-off, Credit Suisse weighs on banks

At 08.58 GMT, the DJ STOXX 50 was 28.35 points or 0.96 pct lower at 2,922.80, while the STOXX 600 fell 2.62 points or 0.88 pct to 294.86.

In Europe this morning, markets were holding up remarkably well in early deals with traders also pointing to today's triple witching as a supporting factor.

"I am very surprised that we are not falling further given the warnings from Credit Suisse and Allianz, but I am not convinced we will be able to keep it this way throughout the day," a trader at a large investment bank said, also noting few investors will be prepared to hold on to large positions ahead of the upcoming long weekend.

Turning to corporate news, the banking sector remains in the spotlight after Credit Suisse issued a profit warning this morning.

Shares in the bank fell 7.7 pct in opening deals after it said it is unlikely to be profitable in the first quarter and said total write-downs of collateralised debt obligations (CDO) amounted to 2.86 bln sfr.

"A lot of this has of course been priced in already and I don't think that many believed that Credit Suisse would report a profit in the first quarter," Landsbanki Kepler analyst Dirk Becker said. Another analyst said the profit warning is not a massive surprise but is definitely an indication for a "negative turnaround".

In addition, a warning from Allianz that reaching its target of boosting operating profit by an average of 10 pct a year to 2009 has become "much more challenging" also weighed on sentiment. Shares fell 0.59 pct.

Also amid financials, IKB Deutsche Industriebank AG lost 3.9 pct after a report in Handelsblatt said the stricken bank has suspended an auction of the bulk of its 3 bln eur portfolio of risky securities amid a lack of satisfactory bids, possibly leading to further writedowns.

The banking sector shed 1.6 pct, according to the DJ STOXX 600 for the industry, with UBS down 5 pct and Societe Generale 3.8 pct lower.

Staying with earnings news, Stora Enso plunged 6.6 pct lower after the Finnish forest products group also warned on profits, stating first-quarter pre-exceptional operating earnings are expected to come in "considerably lower" year on year due to losses in its wood products unit.

In France, Gemalto rose 1.31 pct after the electronic card maker unveiled strong full-year results and set guidance for a "significant improvement" in operating profit in 2008.

Analysts at CA Cheuvreux reiterated a '2 Outperform' recommendation and 28 eur target, saying operating profit was above their forecast and the consensus estimate. Turning to M&A-related news, shares in TietoEnator soared 40.28 pct after Cidron Services' unsolicited 15.50 eur-per-share cash bid for the Finnish IT services group. Shares rallied beyond the bid price as investors speculate Cidron will need to raise its offer.

The news lifted peers Atos Origin and Capgemini by 1.8 pct. Over in Spain, investors are awaiting the start of trading in Colonial shares, which are likely to take a hit after the Investment Corporation of Dubai pulled out of the deal to buy the ailing Spanish real estate group, having failed to reach an agreement with creditors.

In other news, shares in Belgian pharmaceuticals company UCB SA lost 5.6 pct after a recall of its Parkinson's disease product, Neupro, in the US and Europe prompted fears over the company's future profitability. KBC Securities' Jan De Kerpel said: "It is unclear how long the issues with Neupro will last; the financial impact for 2008 is unclear."

In terms of economic data in Europe, the provisional March purchasing managers indices are in focus and are expected to provide further evidence of slowing economic activity. The composite PMI, which covers both the manufacturing and services sectors, is expected to fall to 52.0 from 52.8.

Over in the US, the Philadelphia Fed report -- a monthly survey of manufacturing purchasing managers' business outlook in the district -- is expected to rise in March to a level of -20.0 from -24.0 in the previous month.

The report signals contraction when it is below zero and expansion if above. In addition, the number of individuals filing first-time claims for unemployment in the week ending March 15 is expected to have increased to 360,000 claims from 353,000 in the previous week.

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Asian stocks end mixed; Shanghai, South Korea reverse losses

The Kospi ended up 1.16 points or 0.1 percent at 1,623.39, reversing early losses after technology and export stocks recovered. The Shanghai Composite index also rebounded from heavy losses, closing up 1.13 percent at 3,804.05, off an intraday low of 3,516.33. Airlines and steelmakers led the gains on the Shanghai market.

In Hong Kong, the Hang Seng index trimmed losses in late trade as investors bought back shares ahead of the long weekend. The Hong Kong market will be closed on Friday and Monday for the Easter holiday. The index closed down 3.5 percent at 21,108.22.

The S&P/ASX 200 closed down 3.1 percent at 5,127.50 and the All Ordinaries finished 3.1 percent lower at 5,182.4. The Australian market is closed on Friday and Monday for the Easter holiday. Analysts expect the market to continue to be volatile when trading resumes next week.

In Singapore, the benchmark Straits Times index closed 0.3 percent lower at 2,824.91, but off the day's low of 2,772.91.

Stock markets in the Philippines, Malaysia, Indonesia and Japan were closed today for public holidays.

Light, sweet crude fell 4.94 US dollars to settle at 104.48 US dollars per barrel on the New York Mercantile Exchange, the biggest one-day decline for a front-month oil contract since 1991. Gold for April delivery fell 59 US dollars to settle at 945.30 dollars on the Nymex, which was the steepest single-session drop for gold since June 2006 and came after gold hit fresh highs Monday.

Resource stocks led the benchmarks lower in Australia, with index leader BHP Billiton falling 3.08 Australian dollars or 8.3 percent to 33.87 dollars, and rival Rio Tinto down 9.70 dollars or 7.7 percent at 116.29 dollars. Gold miner Newcrest slipped 4.70 dollars or 13.1 percent to 31.30 dollars and Lihir Gold fell 44 cents or 10.9 percent to 3.60 dollars.

Lihir Gold said today it will buy Equigold NL in an all-share deal to create one of the world's largest gold producers. LGL is offering 33 shares for every 25 Equigold shares in a deal that values Equigold at 5.33 Australian dollars a share or 1.1 billion dollars.

Equigold closed up 33 cents or 7.7 percent at 4.63 dollars. Oil plays were lower, with Woodside Petroleum Ltd down 3.75 dollars or 6.8 percent at 51.26 dollars and Santos down 52 cents or 3.8 percent at 13.03 dollars.

In South Korea, electronics stocks boosted the market. Samsung Electronics jumped 15,000 won or 2.5 percent to 606,000 won, with investors attracted by its positive earnings outlook as the won's sharp depreciation against major global currencies, including the greenback, will likely boost its products to become more competitive in the international market.

LG Electronics also rallied 3,000 won or 2.5 percent to 124,000 won and Hynix surged 650 won or 2.7 percent to 24,750 won.

Oil and mining stocks were lower in Hong Kong, with PetroChina falling 6.81 pct to close at 9.17 Hong Kong dollars, off a low of 9.01, after disappointing 2007 results and on expected weak first-quarter performance.

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Metals - Gold tumbles on stronger dollar, weaker oil prices

At 10.06 am, spot gold was trading at 911.70 usd an ounce against 945.50 usd in late New York trade yesterday. Gold hit an all-time high of 1,032.50 usd an ounce on Monday after the fire sale of Bear Stearns, but has since been pressured sharply lower in the wake of the US Federal Reserve's smaller than expected rate cut on Tuesday.

The Fed's 75 basis point cut has boosted the dollar, with many currency traders having priced in an even bigger drop. With gold acting as an alternative to the greenback, prices have come off.

Mark Pervan, commodity strategist at ANZ bank said: "Gold prices have fallen by 70 usd an ounce or 7 pct in the past 3 days on perceived signs that the bullish drivers that pushed gold up 50 percent in the past six months -- heightening financial market risk, a falling US dollar and a rising oil prices -- may be dissipating."

The stronger dollar has pressured oil and other commodities lower, stripping support from gold which investors use as a hedge against inflation concerns.

Gold's sharp sell-off after rallying above 1,000 usd was perhaps to be expected according to some analysts, though few are prepared to call an end to the precious metal's bull-run, given the potential for further shocks in the current economic climate.

"Given the strong gains seen across the complex this quarter and the aggressive influx of investor hot money in recent weeks it comes as no great surprise that the metals correction has been just as swift and aggressive," said James Moore at TheBullionDesk.com.

"Given that gold has rallied considerably since breaking above 850 usd an ounce with little in the way of a correction, the current pullback may be better for gold long-term and could entice physical demand back into the market," he added.

Demand from jewellers has been hit hard by recent rise in gold prices, but pent-up buying interest is expected to provide good support for the precious metal as the price comes down.

Among other precious metals, silver fell to 17.37 usd an ounce against 18.41 usd. On Tuesday, the metal hit a 27-year high of 21.36 usd, but gold's sell-off has dragged silver sharply lower.

Platinum also fell, trading down at 1,829 usd an ounce against 1,908 usd an ounce. The stronger dollar has pressured prices, while hopes the power crisis could be easing in top producer South Africa -- which has propelled prices to a series of record highs in recent weeks -- has also weighed on the white metal.

South Africa's government has backed an application by state-owned power company Eskom to raise tariffs by 60 pct to help meet rising electricity production costs and fund energy conservation programs.

Power shortages have reduced the amount of electricity available to the energy intensive mining industry, leading to short-fall fears in the platinum market as almost 80 percent of the metal comes from South Africa. Sister metal palladium tracked platinum south, falling to 427 usd an ounce against 456.75 usd.

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