US & World Daily Markets Financial Briefing 21-08-2008

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US STOCKS-Wall St opens lower on credit woes, oil

NEW YORK - U.S. stocks dropped at the open on Thursday as fears of more credit losses in the financial sector rattled investors while shares of mortgage finance companies Fannie Mae  and Freddie Mac  slid anew.
   
A jump of nearly $4 per barrel in the price of U.S. crude oil also raised concerns about business and consumer spending.
   
Fannie fell 8 percent to $4.02 while Freddie dropped 11 percent to $2.89. The Dow Jones industrial average fell 88.83 points, or 0.78 percent, to 11,328.60, while the Standard & Poor's 500 Index lost 9.15 points, or 0.72 percent, at 1,265.39. The Nasdaq Composite Index declined 20.83 points, or 0.87 percent, at 2,368.25.

The number of individuals filing new claims for unemployment insurance fell below expectations in the latest week, but the four-week moving average for this index rose to a level not seen in over six years, the Labor Department said today.
   
The number of first-time claims filed in the week ending August 16 fell 13,000 to 432,000, below the 448,000 claims economists polled by Thomson Reuters IFR Markets were expecting.
   
The four-week moving average for initial claims rose by 7,250 to 445,750, the highest level since December 2001. Economists prefer the four-week moving average because it smoothes out fluctuations in weekly data.
   
Meanwhile, the number of individuals continuing to receive unemployment insurance in the week ending August 9 fell by 17,000 to 3.362 mln, below the 3.4 mln economists were expecting.  
   
The four-week moving average for continuing unemployment claims increased by 66,250 to 3.33 mln, the highest level since November 2003. Labor also reported today that an additional 1.284 mln individuals filed
claims for the Emergency Unemployment Compensation (EUC) program, an increase of 507,284 from the previous week.

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FOREX-Yen rallies, dollar dented on financial mkt fears

LONDON - The dollar slipped on Thursday, weighed down by persistent concern over the U.S. financial system that also triggered a broad unwind of so-called "carry trades", pushing the Japanese yen sharply up across the board.
      
A rise of over 1 percent in oil prices  stoked the broadly negative dollar sentiment already bubbling on fears over the viability of U.S. mortgage giants Fannie Mae  and Freddie Mac , and investment bank Lehman
Brothers .
      
The Financial Times said on Thursday that Lehman -- which some analysts say could soon announce writedowns of up to $4 billion -- held talks to sell 50 percent of its shares to China's CITIC Securities and state-owned Korea Development Bank but both firms walked away, saying the price was too high.
      
A Lehman spokeswoman declined to comment on the report. Renewed worries about one of Wall Street's most venerable banks and broad increase in risk aversion pushed the dollar further down from its 2008 highs struck earlier this week but boosted the yen.
     
"There is some jitteriness in financial markets and in equity markets ... and that tends to mean the yen is a bit better supported against some of the more risky currencies," said Phyllis Papadavid, currency strategist at Societe Generale in London.
      
"Especially with some of the stories surrounding U.S. banks ... there is that sense of risk aversion seeping into the markets."
      
At 1115 GMT the dollar was down 1 percent against the yen at 108.65 yen This was the main driver of a 0.3 percent fall in the dollar index -- a measure of the dollar's value against a basket of six major currencies -- to 76.70 
      
The euro was down 0.8 percent against the yen at 160.60 yen , but was up 0.2 percent versus the dollar at $1.4775 . Relatively high-yielding and "riskier" currencies like the Australian and New Zealand dollars were off sharply against the yen, losing 1.5 percent to 94.35 yen  and 1 percent to 77.34 yen  respectively.
       
In nervous and volatile financial markets, investors tend to shun carry trades. These trades involve selling low-yielding currencies (like the yen) for higher-yielding ones, which offer higher interest rates because they generally carry more risk in terms of growth, inflation or credit risk.
      
In addition to Lehman, investors are looking at developments surrounding Fannie and Freddie. Their shares plunged on Wednesday to their lowest level in almost 20 years on growing expectations of a government bailout, which would wipe out shareholders.
      
Data earlier this week showed that the battered U.S. housing market, at the heart the root of the global financial crisis, is still some way from sustained recovery.
      
Asian and European equities fell on Thursday, and U.S. futures point to a lower open on Wall Street. In commodity markets, oil jumped 1.5 percent to $117.30 a barrel  and gold was up 1.5 percent at $825 an ounce .
      
These factors were having more influence on currencies than macroeconomic or growth indicators, as seen by the yen's rally despite Japan's trade surplus in July shrinking to its smallest in four months. Still, the latest weekly U.S. jobless claims and the Philadelphia Federal Reserve's snapshot of factory activity in August could provide further clues on the U.S. labour market and economy, giving equities and currencies some direction.
      
"Whilst financial market events will once again dominate near-term sentiment, the U.S. weekly initial claims and Philly Fed index will also provide a test of dollar resilience to data," JP Morgan said in a note on Thursday.
      
Claims are seen holding well above the key 400,000 level. Earlier, the euro drew little clear direction from purchasing managers index figures and sterling's reaction to a surprise rise in UK retail sales last
month was brief.    

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European shares down by midday, financial woes weigh

FRANKFURT - European shares fell by midday on Thursday, briefly touching a three-week low as renewed concerns about banks' balance sheets weighed on financial stocks, off-setting gains in miners.

Among individual gainers, Daimler  shares rose almost 2 percent after the German car maker denied a magazine report that said it was considering a bourse listing for parts of its market-leading trucks business.

By 1021 GMT, the pan-European FTSEurofirst 300 index was down 0.9 percent at 1,154.68 points, briefly hitting its lowest level since July 29. Financial shares were the strongest negative pull on the index and the DJ Stoxx banking index fell 1.9 percent.

HSBC  fell 2.4 percent, BNP Paribas  fell 2.5 percent and Royal Bank of Scotland  declined 2.9 percent.  Traders said that a report in the Financial Times on Lehman Brothers triggered further bad sentiment.

The FT said the beleaguered U.S. investment bank had held talks on a sale of up to half its shares with China's CITIC Securities as well as with state-owned Korea Development Bank (KDB), but both investors walked away saying the price was too high.

CITIC Securities, China's biggest brokerage, said it had held no formal talks about buying a stake in Lehman. Worries about the viability of U.S. mortgage finance giants Fannie Mae and Freddie Mac  persisted and added to nervousness in the market. Expectations that an imminent government bailout of the two would wipe out shareholders drove their stocks to almost two-decade lows on Wall Street.

"These are the two main reason for why financials are trading lower at the moment," said Klaus Stabl, head of research at ICF brokerage, referring to news on Lehman and Fannie Mae and Freddie Mac. He added that the market would quickly forget about such issues once they were solved. "But until then, it's the fear that weighs," he said.

Around Europe, the UK's FTSE 100 index fell 0.9 percent, Germany's DAX index fell 1.1 percent and France's CAC 40 dropped 1.5 percent. Gains in mining stocks cushioned the fall in the pan-European index as commodity prices rose. The DJ Stoxx European basic resources index was up 0.5 percent.

Strong first-half results boosted Kazakh miner Eurasian Natural Resources, up 2.5 percent. The company also said it would keep looking for takeovers, especially in China, and this would not be made difficult by an increased stake of 25 percent held by rival Kazakhmys .

Anglo American  rose 1 percent, Xstrata  gained 0.9 percent, and Eramet  added 2.6 percent. Oil rose about $117 a barrel, up more than $1.6, as Washington's missile shield deal with Poland angered Russia, adding to international tension.

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Asian stock market summary

JAPAN
The benchmark Nikkei 225 Stock Average fell 0.8 percent to close at 12,752.21, its lowest level in nearly five months, as investors stayed cautious amid lingering worries about the U.S. financial sector and the outlook for the global economy.
   
A firmer yen added to the negative mood and weighed on export-oriented shares. The broader Topix index was down 0.7 percent to finish at 1,224.53.

SOUTH KOREA
The Korea Composite Stock Price Index closed down 1.83 percent at 1,512.59, with exporters hit by deepening economic worries and construction shares tumbling on disappointment with new measures aimed at helping the industry.
 
AUSTRALIA
The benchmark S&P/ASX 200 fell 1.1 percent to close at 4,875.2, as weak outlook statements from companies such as QBE Insurance Group Ltd countered advances by the top miners. The All Ordinaries closed down 1.0 percent at 4,946.7.

CHINA
The benchmark Shanghai Composite Index closed down 3.63 percent at 2,431.72, on profit-taking after yesterday's 7.63 percent rise, with investors disappointed at the failure of the government to confirm rumours of a package of measures to stimulate the economy and markets.
  
Steel-makers and power producers fell but brokers extended their gains on expectations that regulators will allow them to act as intermediaries in the trading of shares coming out of lockup.

The Shanghai A-share Index was down 3.63 percent at 2,552.64, and the Shenzhen A-share Index fell 3.36 percent to 722.48. The Shanghai B-share Index fell 3.69 percent to 156.90, and the Shenzhen B-share Index lost 2.89 percent to 379.66.

TAIWAN
The weighted index closed down 1.74 percent at 6,918.48, amid lingering concerns over an ongoing government investigation into alleged money-laundering by former president Chen Shui-bian and his family.
   
Financial stocks also took a hit from news that the finance ministry is reviewing mergers and acquisitions deals undertaken during Chen's tenure that involved state-controlled financial firms.
   
Regional market weakness also weighed on sentiment. Thin turnover pointed to sidelined mood, with investors awaiting more second-quarter results announcements from local firms.

PHILIPPINE
The Manila's composite index finished down 0.9 percent at 2,656.92.

HONG KONG
The Hang Seng index closed down 539.20 points or 2.58 pct at 20,392.06, off a low of 20,350.48 and high of 20,762.65.
   
Turnover was 55.74 bln hkd. Hutchison Whampoa was down 0.95 hkd or 1.33 pct at 70.55 and Cheung Kong was down 2.90 hkd or 2.79 pct at 101.10.
   
ICBC slipped 0.11 hkd or 2.1 pct at 5.12 and PCCW fell 0.20 hkd or 4 pct at 4.80. Sinopec lost 0.29 hkd or 3.68 pct and PetroChina shed 0.25 hkd or 2.53 pct at 9.64.

INDIA
India's main stock index, the 30-share Sensex of the Bombay Stock Exchange, closed 434.50 points or 2.96 percent lower at 14,243.73 and the broader 50-share S&P CNX Nifty of the National Stock Exchange shed 2.99 percent to end at 4,283.85 points, below closely-watched level of 4,300.

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Oil prices rise further after higher than expected drop in U.S. fuel inventories

LONDON - World oil prices extended gains on Thursday following a bigger-than-expected drop in inventories of U.S. motor fuel.

New York's main contract, light sweet crude for delivery in October, climbed 1.02 dollars to 115.56 dollars a barrel in electronic deals.

London's Brent North Sea crude for October advanced $1.10 to $115.10 a barrel in electronic deals.

Prices had closed higher on Wednesday after the U.S. Department of Energy said that American gasoline (petrol) reserves slumped by 6.2 million barrels last week, compared with market expectations for a drop of only 2.4 million barrels.

Gasoline stocks are closely watched at this time of year as American motorists are on the highways for their summer vacations, typically pushing up demand for motor fuel.

Oil prices had closed up by more than $1 on Tuesday after OPEC member Venezuela said it would ask the cartel at its September meeting to cut production if downward price pressure continued.

Despite recent gains, world oil prices have tumbled sharply from record highs above 147 dollars a barrel set in July as weak economic growth dents global demand for energy.

But prices, which broke through the $100 level at the start of 2008, remain well above year-ago levels.

Traders said interest was rising about what position the Organization of the Petroleum Exporting Countries (OPEC) would take at its September meeting. OPEC, which is steered by Saudi Arabia, produces about 40 percent of the world's crude.

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