US & World Daily Markets Financial Briefing 22-02-2008

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Stocks fall as market awaits data

NEW YORK - Stocks fell Friday as investors with little news to trade on after Thursday's pullback kept selling ahead of economic figures due next week.

Investors seemed to be looking at corporate news as they awaited reports on existing home sales and durable goods set to arrive next week, but found few reasons to buy.

The market's moderate moves follow a sizable decline Thursday that left the Dow Jones industrial average down more than 140 points. Investors worried about a weaker-than-expected reading on regional manufacturing from the Federal Reserve Bank of Philadelphia. Investors were also disappointed with another drop in the Conference Board's monthly index of leading economic indicators.

In midmorning trading, the Dow fell 46.65, or 0.38 percent, to 12,237.65.  Broader stock indicators slipped. The Standard & Poor's 500 index fell 6.25, or 0.47 percent, to 1,336.28, and the Nasdaq composite index slid 12.20, or 0.53 percent, to 2,287.58.

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Forex - Dollar stays weak but euro gains capped by poor factory orders

LONDON - The dollar remained weak across the board as fears over the US economy continued to plague the currency. A set of poor data yesterday appeared to confirm investors' worries that the world's largest economy is either in, or heading towards, recession.

The Philadelphia Fed survey of manufacturing activity fell to minus 24.0 in February from minus 20.9 in January -- its lowest levels since the 2001 recession, and way below analysts' expectations. The Conference Board index of leading economic indicators fell for the fourth month in a row, marking a 2 pct drop over the past six months -- also the biggest decline since 2001.

Simon Derrick, currency analyst at the Bank of New York, said it appears the dollar no longer benefits from speculation of Fed rate cuts, such as has been sparked by weak data of this kind. In recent months, increased talk of rate cuts has helped the dollar due to hopes that looser monetary policy could stave off a recession -- but many now fear Fed action will be too late, Derrick said.

"It appears that the market can no longer be wholly placated with assurances that monetary policy will become increasingly accommodative," he said. "Indeed, with this scenario fully factored-in, investors are now watching and waiting in desperate hope that the US economy will manage to dodge recession until monetary policy makes its lagged impact," he added.

With a lack of US data today, markets will look for guidance from Fed policy maker Richard Fisher. "Fisher is known to be a hawk and hence will place some attention on the upside risks to inflation, but markets are likely to overlook this as 'old news'," said BNP Paribas analysts.

The euro benefited from the weak Philly Fed and Conference Board numbers, climbing to its highest levels against the dollar in two and a half weeks, where it gained further support from a sturdy set of flash euro zone PMI surveys. The services PMI in particular rose to 52.3 from 50.6, confounding expectation for a drop.

However the single currency's gains were capped mid-morning by a weak factory orders report from the euro zone.

Industrial orders fell 3.6 pct in December from November, worse than analysts' forecasts for a 1.4 pct drop. The annual rate of growth was 2.1 pct, much lower than the 7.8 pct penciled in.

Elsewhere, the yen, seen as a safe bet, firmed in an environment of risk aversion.

However, analysts said the Japanese currency is vulnerable because markets are turning their attention back to the yield offered by different currencies. Japan's interest rates, at 0.5 pct, are the lowest of any developed nation. "Currency markets show general support for high yield... we expect low yielding currencies (such as the yen) to underperform," said BNP Paribas analysts.

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Euroshares flat midday as RWE weighs, Dow set for lacklustre start

At 11.59 am, the DJ STOXX 50 fell 4.7 points or 0.14 pct to 3,215.04, while the STOXX 600 lost 1.36 points or 0.42 pct at 321.07. RWE shed 4.96 pct after the group presented a 20.7 increase in adjusted net profit for the full year, but missed expectations.

The Financial Times Deutschland also reported that the group's supervisory board has approved the possibility of further capital increases, which will enable the group to finance larger acquisitions on short notice. Elsewhere among utilities, Biffa added 1.3 pct after a report in the Daily Telegraph that Terra Firma may make a 1.5 bln stg counterbid jointly with Suez -- down 2.26 pct -- for the UK waste management business.

LLoyds TSB shone -- up 3.84 pct -- as the group reported slightly better than expected full year numbers and said the global credit crunch cost it only 280 mln stg over 2007 as a whole. BNP Paribas continued to be buoyed -- up 1.23 pct -- as market watchers repeated their upbeat view of the bank, which has weathered the current credit crunch much better than many of its peers.

Societe Generale shares were down another 2.43 pct. But Vontobel fell 2.05 pct as Credit Suisse slashed its target for the Swiss banking group to 54 sfr from 75 sfr. And BBVA, Dexia and HBOS were lower as Merrill Lynch added the trio to its 'least preferred list'. The companies' shares fell 0.73 pct, 1.67 pct and 0.91 pct, respectively. And shares in French carmakers were among the top fallers in the CAC-40 as weak consumer spending data this morning added to the negative sentiment already stoked by the EU's downward revision to growth forecasts yesterday.

Renault fell 4.17 pct and Peugeot shares fell 3.15 pct. And shares in Sage Group fell 3.8 pct amid concerns over its exposure to the US following competitor Intuit Inc's poor second quarter results overnight. Cap Gemini fell 2.82 pct pct. Soitec shares were down 3.46 pct as SG Secs initiated coverage of the shares with a 'sell' recommendation and 4.70 eur target, citing substantial risks relating to the French chipmaker's principal customer, US group Advanced Micro Devices (AMD).

But Parmalat added 2.75 pct as the food and dairy producer said this morning that Banca Monte dei Paschi di Siena will pay a settlement of some 80 mln eur to put an end to a legal dispute with Parmalat. The Italian dairy producer has been suing creditor banks on claims they contributed to worsening the financial problems that stemmed from fraudulent management of the company.

And Arcelor Mittal was leading the STOXX 50 risers board -- up 2.49 pct -- as Deutsche Bank upped its recommendation to 'buy' from 'hold' on hopes of further price increases for the group's products.

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Asian stocks fall with Wall Street as weak data revives recession fears

The Kospi closed down 1.1 percent at 1,686.45 with technology and banking stocks leading the pullback. The Nikkei finished down 1.4 percent at 13,500.46 and the Topix lost 1 percent to 1,321.37 with the big exporters falling as the yen strengthened.

Bank of Japan Governor told a parliamentary committee that the Japanese economy is facing increased uncertainty as the US economy falters and global markets remain volatile.

The S&P/ASX 200 ended down 0.4 percent at 5,559.9 and the All Ordinaries was down 0.3 percent at 5,644.5 as investors continued to punish banking stocks, fearing more losses may be revealed following bad loans to highly leveraged groups.

ANZ, St George Bank and Commonwealth Bank of Australia (CBA) admitted having unsecured exposures to shopping centre owner Centro Properties Group, which is struggling to repay billions of dollars of short-term debt.

The Hang Seng ended down 1.4 percent to 23,305.04 and the Singapore Straits Times ended down 0.2 percent at 3,048.64. The Kuala Lumpur Composite fell 1.8 percent to 1,369.48 and the Philippines Composite lost 3 percent to close at 3,080.24. while Taiwan's weighted index closed up 0.28 percent at 8,108.71. The Jakarta composite index closed up 0.3 percent at 2,741.18. Recession fears resurface

Oil prices hit a record above 101 dollars a barrel this week, although they retreated to close just above 98 dollars in New York. Economists are worried that the high price will cut into consumer spending as people pay more at the pump, further braking economic growth.

Financial stocks fell across the region with Bank of Communications down 3.05 percent at 8.91 Hong Kong dollars. Ping An Insurance (Group) fell 2.3 percent at 56.70 dollars. China's second-biggest insurer may cut its planned fund-raising activity to 120 billion yuan from an earlier estimate of about 160 billion yuan, according to media reports.

Other insurers were also down. China Life Insurance lost 2 percent to 29.60 dollars. PICC Property & Casualty lost 1.8 percent at 7.59 dollars.

In Australia, National Australia Bank finished down 3.3 percent at 28.59 dollars and Commonwealth Bank lost 2 percent to 42.59 dollars. But conglomerate Wesfarmers bucked the market trend after it reported a 53.2 percent rise in first-half earnings. Wesfarmers closed up 6.8 percent at 37.91 dollars. Yen weighs

In Tokyo, a stronger yen hurt big exporters, sending Honda down 2.4 percent to 3,300 yen and Toyota lost 2 percent to 5,960 yen. Japan's second-largest telecommunications group, KDDI lost 10.1 percent at 650,000 yen and the largest, Nippon Telegraph and Telephone (NTT), slipped 3.5 percent to 465,000.

In Shanghai, financials fell on concerns that a large supply of stocks is set to hit the markets in the near term. The official People's Daily reported that 44 listed companies have recently announced plans to tap the capital markets again to raise a total of about 260 billion yuan.

The China Securities Journal said that 133.9 billion A-shares held by institutions will come onto the market in 2008 after lockups expire. China Merchants Bank lost 5.8 percent to 30.35 yuan, after it said 2.532 billion of its A-shares will come out of lockup and be available for trading from Feb 27.

Shenzhen Development Bank declined 1.75 yuan to 32.24. China Petroleum & Chemical Corp (Sinopec) shed 5.8 percent to 16.87 yuan.

The Bombay Stock Exchange's 30-share benchmark Sensex closed down 385.61 points or 2.17 pct down at 17,349.07 and the National Stock Exchange's 50-share S&P CNX Nifty closed down 81.05 points or 1.56 pct at 5,110.75.

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Metals - Gold consolidates below 950 usd after yesterday's record high

LONDON - Gold was steady heading into the afternoon in London, consolidating below the 950 usd mark after hitting a fresh record-high yesterday on heightened fears of a recession in the US.

Dollar weakness and recession fears have seen money pouring into gold, with investors using bullion as an alternative investment to the most common form of currency reserves and as a store of wealth during the ongoing economic turmoil. Inflation concerns are also providing support, with oil still close to the 100 usd mark and costs rising in the US and Europe, the prospect of a return to stagflation has piqued buying interest in gold.

At 12.31 pm, gold was trading at 945.85 usd an ounce against 944.54 usd in late New York trade yesterday. Yesterday, gold hit a fresh record high of 953.75 usd an ounce. Gold's jump above the 950 usd mark yesterday came after the US Philadelphia Fed manufacturing survey came in weaker than expected and leading indicators posted their fourth-straight decline.

Manufacturing in the mid-Atlantic region continued its recessionary slide this month, the Federal Reserve Bank of Philadelphia said in a report accompanying its February survey yesterday. "Increasing fears of stagflation drove gold to new record highs in major currencies," said Mark O'Byrne at Gold Investments.

"Both the European Central Bank and the Federal Reserve have lowered their growth estimates and the Fed has also increased its inflation forecast. The Philly Fed Index fell to its lowest level since 2001 and unemployment news was poor with the 4 week moving average of jobless claims rising 10,750 to 360,500"

Meanwhile, platinum eased after touching another record high in Asian trade. The white metal rose to 2,203.50 due to supply shortage fears created by electricity cuts in key producer South Africa. Power shortages have slashed South African mine production -- the source of nearly 80 pct of global platinum output -- raising fears of a severe supply and demand deficit this year.

"Strong demand in Asia again this morning has propelled the metal through 2,200 usd an ounce," said BullionDesk.com analyst James Moore.

"Ongoing supply disruptions in South Africa continue to limit platinum's downside risk, as traders view dips as buying opportunities, and with investors still increasing their holdings through the Exchange Traded Funds, the market deficit is expected to widen considerably from last years 265,000 ounces with the spot price potentially set to challenge 3,000 usd an ounce later in the year."

Platinum was trading at 2,144 usd an ounce going into the afternoon in London against 2,170.50 usd in late New York trade yesterday, having fallen back on profit-taking.

Meanwhile, palladium was consolidating below the 500 usd mark, trading at 493 usd an ounce against 511.50 usd. Platinum's sister metal -- about about one-third of which is sourced in South Africa -- reached its highest level since mid-2001 yesterday, touching 525 usd.

Finally, silver edged up to 17.89 usd an ounce against 17.85 usd. Yesterday, silver hit a 27-year high of 18.03 usd before slipping back.

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