US & World Daily Markets Financial Briefing 22-04-2008

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Stocks decline as Street examines quarterly reports

NEW YORK - Wall Street fell Tuesday as investors appeared unimpressed by a rush of quarterly results from bellwethers like AT&T Inc., DuPont and McDonald's Corp.

AT&T's earnings met Wall Street's forecast while McDonald's and DuPont reported stronger-than-expected numbers. But DuPont said a U.S. slowdown will offset growth abroad and McDonald's said an important metric of its sales showed a decline for March.

The comments kept some investors in a cautious posture. With hundreds of companies still to report results, investors are anxious over what the figures might say about the prospects for the economy.

As occurs with each earnings rush, investors are combing reports for insights into the health of the economy and the prospects for profits in the coming quarters. The shifts in market sentiment with each successive wave of reports, which is also typical of an earnings period, is perhaps a welcome dynamic following months of often disconcerting volatility.

Investors appeared little moved by news of continued weakness in the housing sector. Sales of existing homes fell 2 percent in March to a seasonally adjusted annual rate of 4.93 million units, while the median sales price dropped for a seventh straight month. The National Association of Realtors also said sales rose in the Northeast and West but fell in the Midwest and South.

In midmorning trading, the Dow Jones industrial average fell 41.93, or 0.33 percent, to 12,783.09. Broader stock indicators also declined. The Standard & Poor's 500 index fell 5.43, or 0.39 percent, to 1,382.74, and the Nasdaq composite index fell 11.85, or 0.49 percent, to 2,396.19.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.74 percent from 3.73 percent late Monday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude fell 21 cents to $117.27 in premarket electronic trading on the New York Mercantile Exchange. On Monday, oil touched an all-time high of $117.83 a barrel.

Investors were digesting a flurry of quarterly results and some appeared to confirm concerns about the economy.

Late Monday, Texas Instruments Inc. warned of a weak market for the chips it makes for high-end mobile phones. The company's results were nearly in line with Wall Street's expectations, however. The stock fell $1.52, or 5 percent, to $29.07.

In other corporate news, AT&T rose 21 cents to $37.80 after reporting that its first-quarter earnings rose 22 percent following growth in the company's wireless division and as its enterprise services business saw a reversal of an earlier decline.

DuPont said profits jumped 26 percent as the chemical company saw higher sales and benefits from the weak dollar. But the company's comments about the U.S. market appeared to weigh on the stock, which fell $2.11, or 4 percent, to $50.14.

McDonald's Corp. slipped 20 cents to $58.47 after saying its first-quarter earnings grew 24 percent. The fast food chain benefited from the weak U.S. dollar and strong global sales. However, it also said its same-stores sales, or sales at restaurants open at least a year, declined in March.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 223.3 million shares.

The Russell 2000 index of smaller companies 57.49, or 0.45 percent, to 12,767.53. Overseas, Japan's Nikkei stock average closed down 1.09 percent. In afternoon trading, Britain's FTSE 100 fell 0.27 percent, Germany's DAX index fell 0.21 percent, and France's CAC-40 lost 0.48 percent.

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Forex - Dollar remains on back foot ahead of U.S. existing home sales data

LONDON - The dollar remained on the back foot against the euro ahead of U.S. existing home sales data, as attention continued to focus on interest rate differentials between the two areas.

Comments from governing council members Yves Mersch and Christian Noyer have raised speculation the European Central Bank (ECB) might consider increasing interest rates to keep inflation in check rather than simply keeping them on hold.

This is in stark contrast to the U.S. where the Federal Reserve has cut rates aggressively. "More hawkish lines have been thrown to the market from ECB policy makers, this time from Christian Noyer and Yves Mersch," said Peter Stoneham, an analyst at Thomson IFR Markets.

"With Klaus Liebscher and Axel Weber setting the rate tightening tone Monday, the stacking up of fresh hawkish rhetoric has helped to drive the euro" from the low of around 1.583 seen in Asian trade, said Stoneham.

Disappointing first-quarter earnings released Monday by major U.S. bank Bank of America also continued to add pressure on the dollar. Attention will turn later to economic data from the world's largest economy, with the release of U.S. existing home sales for March.

Existing home sales data are expected to have fallen to 4.950 million in March from 5.030 million the previous month.

Elsewhere, the pound bounced higher after a Monetary Policy Committee (MPC) member said the Bank of England's liquidity scheme announced Monday will help the rate setting committee to keep its focus on the job of keeping inflationary pressures in the UK economy in check.

Tim Besley, one of the four external members on the MPC, said the scheme should "allow the MPC to stay more focused on its task of using monetary policy to target inflation."

The pound had been under pressure on Monday following the announcement of the scheme as market players viewed the plan with skepticism and expressed concern over its expense. "The tone of the Besley remarks is hawkish but measured and should at least afford the struggling pound some room to pause ," said Thomson IFR Markets' Stoneham.

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Euroshares open slightly lower, Tele Atlas, TomTom rally

At 9:19 a.m., the DJ STOXX 50 was 7.90 points or 0.25 percent lower at 3,157.63, while the STOXX 600 fell 0.48 points or 0.15 percent to 316.48. The technology sector, following a weaker start this morning, received a boost from newswire reports which said the EU Commission is to approve TomTom's acquisition of Tele Atlas unconditionally.

Shares in Tele Atlas rallied 2.83 percent, while TomTom gained 8.8 percent. Staying with M&A news, Air France-KLM led the CAC-gainers higher, up 3 percent, after the group said last night that the contract it signed regarding a takeover bid for ailing airline Alitalia Spa was no longer valid.

"The market is relieved they're giving up on this deal," said a dealer at a Paris-based brokerage. "People were expecting that, in the short-term, the deal would hamper margin and earnings growth at Air France, even if over the medium and long-term it was expected to provide a boost."

Meanwhile, OC Oerlikon added 1.80 percent, after Renova, the investment vehicle of Russian oligarch Viktor Vekselberg, confirmed rumours that it bought a further stake in OC Oerlikon from Victory Holdings.

The group said early on Tuesday that it now holds a 31.99 percent stake in the Swiss technology group after exercising a call option against Victory Industriebeteiligung for a share stake of over 7.6 percent. Staying in Switzerland, excellent first-quarter sales figures from agribusiness Syngenta resulted in profit taking this morning.

Shares were down 1.80 percent despite bullish comments and praise from analysts. Landsbanki Kepler reiterated its 'buy' rating and said the results were well above consensus, largely due to the weakness in the U.S. dollar.

"On the back of the strong figures, increased guidance which speaks for the company's operational excellence and strong agribusiness fundamentals, we remain bullish," Landsbanki said and raised the target for the stock to 360 Swiss francs from 333.

In Norway, aluminium producer Norsk Hydro released first quarter results which largely missed analyst forecasts, but impressed with its EBIT performance.

Nordic investment bank Carnegie said in a research note that Norsk Hydro's adjusted Q1 EBIT of 2.032 billion was 13 percent ahead of market consensus and 17 percent of its own forecasts.

Shares in Norsk Hydro were 1.91 percent higher at last check. In France, car maker Renault SA lost 2 percent as a disappointing sales publication for the first quarter of the year heightened concerns the group may miss its full-year guidance.

Finally, chip maker Infineon turned around during the morning, up 2.79 percent. Its U.S. unit Qimonda delivered another bad batch of numbers but that it raised investor hopes a sale of the division may be imminent. Other companies releasing earnings results today, include Associated British Foods, Saint Gobain, Acerinox, Actelion, Subsea 7 and Temenos, among others.

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Asian stocks fall as U.S. concerns return; Shanghai bucks trend

The S&P/ASX 200 closed down 0.6 percent at 5,564.6 and the All Ordinaries lost 0.6 percent to 5,628.4. Banks were mostly lower after Commonwealth Bank of Australia Ltd. (CBA) Chief Executive Ralph Norris said the credit crisis could last another 18 months and may impact bank earnings in the coming years. Norris made the comments to the Australian Financial Review.

ANZ closed down 1.7 percent to A$21.14 ahead of its mid-year results. Australia's third-largest bank has already announced that it will set aside A$975 million in bad debt provisions, more than the A$576 million in provisions it made for the entire financial year ended September.

National Australia Bank ended down 0.2 percent to A$29.40, but Commonwealth Bank reversed earlier losses to close 0.2 percent higher at A$44.00. In Tokyo, the Nikkei finished down 1.1 percent at 13,547.82, while the broader Topix lost 1.5 percent to 1,311.46.

 Mitsubishi UFJ Financial fell 2.2 percent to 1,022 yen. Nomura dipped 3.9 percent to 1,639 yen after it confirmed that regulators are probing alleged insider trading by an employee. The Shanghai Composite was last up 1 percent at 3,147.79, bouncing back from a one-year low of 2,990.79. The Hang Seng was down 0.2 percent at 24,672.76, well above its low of 24,413.25.

"The rebound in the Chinese market seems to have helped trim losses in Hong Kong," said Ben Kwong, head of research at KGI Asia. "Mainland investors are looking for bargains after sharp falls. In the near term, people are still hoping that the government will come up with more market-friendly measures like cutting the stamp duty," he said.

On Monday, Chinese shares failed to hold gains posted after the government announced restrictions on the sale of shares coming out of lockup.

Elsewhere, the Singapore Straits Times index was flat at 3,173.92, the Malaysian KLSE Composite was down 0.2 percent at 1,277.65 and the Philippines Composite lost 1.2 percent to 2,855.75. The South Korean Kospi fell 0.7 percent to 1,787.49.

Shares of the various units of the nation's biggest conglomerate, Samsung Group, fell after Chairman Lee Kun-hee said he would step down in the wake of an investigation and indictment for breach of trust and tax evasion. Special prosecutors last week concluded the probe of Lee, whose family owns Samsung through a series of cross-investments.

Samsung SDI was down 2.2 percent at 79,700 won and Samsung Securities was down 4.8 percent at 81,600 won. Samsung Fire & Marine fell 3.1 percent to 205,500 won and Samsung Climate lost 2.3 percent to 7,280 won. Samsung Corp. lost a full 9 percent to 70,700 won.

Santos was down 1.5 percent at A$16.64 after strong gains on Monday. Petrochina rose 5.3 percent to HK$10.68, Inpex rose 0.8 percent to 1.22 million yen.

Also in Japan, Nippon Steel lost 3.2 percent at 553 yen after the Nikkei newspaper reported that Japan's largest steelmaker will seek a 40 percent increase in prices it charges automakers and other customers because of soaring costs of materials.

Rival JFE Holdings lost 2.4 percent to 5,310 yen while another rival Sumitomo Metal Industries slipped 2.3 percent to 422 yen.

The Nikkei also reported that Matsushita Electric Industrial and Pioneer plan to merge their plasma display panel development and production operations by 2009, allowing Pioneer to focus on assembling flat televisions. Matsushita Electric Industrial lost 3.9 percent at 2,075 yen, while Pioneer lost 0.3 percent at 989 yen.

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Oil rises to record in New York, London on supply fears, Chinese demand

LONDON - Oil rallied to new record highs on both sides of the Atlantic as supply fears and strong Chinese demand sparked buying. 

New York-traded West Texas Intermediate crude contracts for May delivery, which expire today, rose to a record $118.05, before easing back to trade at $117.67 by 10:33 a.m., up 19 cents from yesterday's close. The next forward month June WTI contract is now trading up 17 cents at $116.80 a barrel.
   
Meanwhile in London, Brent crude for June delivery was trading up 7 cents at $114.50, having earlier touched a new high of $115.03. "For the moment, there does not seem to be anything stopping the price juggernaut we are seeing in energy," said MF Global analyst Ed Meir.
   
Oil has rallied to a series of record highs in recent sessions. Supply fears have been stoked after a Royal Dutch Shell PLC joint venture in Nigeria said it may not be able to cover some April-May supply contracts totalling 169,000 barrels per day (bpd) of crude, following militant attacks on a pipeline last week.
   
The Movement for the Emancipation of the Niger Delta (MEND), who claimed responsibility for last Thursday's attack, yesterday hit a further two pipelines operated by Chevron Corp. and the Shell joint venture in southern Rivers state.
   
Further concerns have arisen as the 200,000 bpd Grangemouth refinery in Scotland has begun shutting down ahead of a two-day strike planned for this Sunday, which could see some North Sea supplies shut in.
   
Management and unions are due to meet at conciliation service Acas in London this afternoon in a bid to break the current negotiation deadlock over proposed changes to staff pension schemes.
   
Booming demand in China, which imported a record 4 million bpd of crude in March and quadrupled diesel imports to 494,192 tonnes ahead of the summer Olympics, has heightened fears over stretched supplies.
   
Short-term hopes for higher oil exports from the Organisation of Petroleum Exporting Countries (OPEC) to help cool record prices were dashed yesterday, with cartel members repeating the group's stance that there is no shortage of supplies in the market.
  
However, OPEC plans to increase production capacity by 5 million bpd by 2012, the cartel's secretary general Abdulla Salem El-Badri said at an international energy forum in Rome on Tuesday.
   
International Energy Agency chief Nobuo Tanaka has expressed concerns that recent price gains in crude could push the global economy into a recession. However, he has agreed with OPEC's stance that markets are currently well supplied, while attending the joint producers and consumers forum in Rome.

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