US & World Daily Markets Financial Briefing 24-04-2008

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Wall Street turns lower after drop in jobless claims

NEW YORK - Stocks pulled back Thursday as investors juggled a drop in weekly unemployment claims and stronger-than-expected results from Ford Motor Co. with weak housing figures and cautious comments from some retailers.

Selling intensified early in the session after the government reported that sales of new homes fell last month to the lowest level since 1991. While the decline had been expected, it appeared to stir concerns that the hangover from the housing bubble would remain an intractable obstacle for the economy. The retreat wasn't surprising as investors tried to square their concerns about forecasts from Amazon.com Inc. and Starbucks Corp. with the drop in weekly unemployment claims and the results from Ford.

Wall Street is collating the rush of quarterly profit and loss reports as well as the fresh economic data to help determine how long the economy's slowdown might last. Some of the companies' forecasts underscored a worrisome notion that the economy might enter a prolonged period of sluggishness, while others signaled for some investors that Wall Street has been overly dour in its assessment of the business climate.

The Labor Department's report that claims for unemployment benefits declined by 33,000 last week to 342,000 came as a surprise after economists predicted claims would rise by 3,000. The notion that unemployment might be contained appeared to cap some concern about the economy. With consumer spending accounting for about 70 percent of U.S. economic activity, a rise in unemployment could dent people's willingness to reach into their wallets.

In midmorning trading, the Dow Jones industrial average fell 26.63, or 0.21 percent, to 12,736.59. Broader stock indicators declined. The Standard & Poor's 500 index fell 6.54, or 0.47 percent, to 1,373.39, and the Nasdaq composite index fell 19.36, or 0.80 percent, to 2,385.85. Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 221.7 million shares.

Bond prices fell following the drop in unemployment claims. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.81 percent from 3.74 percent late Wednesday. The dollar rose against most other major currencies, while gold prices fell. Light, sweet crude fell $1.61 to $116.69 on the New York Mercantile Exchange.

While investors appeared pleased by the employment report not all the day's economic news was welcome. The Commerce Department said that new home sales fell by 8.5 percent in March to a seasonally adjusted annual rate of 526,000 units -- the slowest pace since October 1991. Also, the median price of a new home showed the sharpest year-over-year decline in nearly four decades.

Adding to investors' list of worries, orders to factories for durable goods -- big-ticket items like refrigerators, cars and computers -- declined for a third straight month in March. This marks the longest sustained pullback since the 2001 recession.

And investors also appeared concerned by comments from Amazon and Starbucks. Amazon worried investors over the strength of its profit margins, while Starbucks warned that its second-quarter profit will likely fall short of Wall Street's expectations because of weak consumer spending.

Their forecasts, delivered after the closing bell Wednesday, touched off unease over the prospects for the consumer. Amazon fell $3.14, or 3.9 percent, to $77.86, while Starbucks dropped $1.91, or 11 percent, to $15.94.

In other corporate news, Ford Motor Co. reported a $100 million profit in the first quarter after strong results from Europe and South America helped make up for a slower U.S. economy. It was the first profitable quarter for the No. 2 U.S.-based automaker since the second quarter of 2007. Ford rose 68 cents, or 9 percent, to $8.20.

3M Co. -- the maker of Scotch tape and Post-It notes -- fell $2.22, or 2.8 percent, to $78.41 after reporting its first-quarter profit fell 28 percent from a year earlier, which benefited from a gain on the sale of one of its branded pharmaceutical business in Europe.

Motorola Inc. slid 43 cents, or 4.5 percent, to $9.12 after reporting that its first-quarter loss widened following a 39 percent decline in its mobile business.

The Russell 2000 index of smaller companies fell 6.19, or 0.87 percent, to 701.92. Overseas, Japan's Nikkei stock average fell 0.28 percent. In afternoon trading, Britain's FTSE 100 fell 1.41 percent, Germany's DAX index slipped 0.16 percent, and France's CAC-40 fell 0.76 percent.

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Forex - Euro consolidates Ifo losses, yen firms on equity market falls

LONDON - The euro consolidated its earlier losses following a much weaker-than-expected German business survey while the yen picked up as European bourses traded lower. The Ifo research institute said its April business climate index for Germany fell to 102.4 from 104.8 in March, well below analysts' forecasts of a decline to 104.3.

In recent months, economists have been surprised at the strength of Ifo surveys, providing support to the idea that the euro zone economy has "decoupled" from the United States and will weather the credit crunch relatively unscathed.

But Thursday's data and Wednesday's weak euro zone manufacturing PMI survey mean many analysts are now questioning this idea, boosting expectations the European Central Bank will be forced to cut interest rates in the coming months.

"Today's softer European sentiment numbers are the first sign that Europe will also be hit by the global slowdown over the medium term," said Alina Anishchanka, currency strategist at UBS.

The news meant the euro moved well away from its all-time high of $1.6018 hit on Tuesday. Aside from the weak European data, expectations that the U.S. Federal Reserve may be about to end its aggressive round of interest rate cutting have also weighed on the single currency.

Markets anticipate the Fed will cut interest rates by a quarter point next week but expectations are building that it could then refrain from any further cuts. "If the Fed next week signals a need to pause in order to assess the impact of previous monetary easing, the dollar will rebound,"  UBS' Anishchanka said.

Later in the day focus will be on U.S. March durable goods orders, which are expected to post a 0.1 percent rise after falling 1.1 percent in February.

Elsewhere, the yen firmed as European bourses all posted losses this morning, prompting a series of safe haven flows. A bigger-than expected writedown from Credit Suisse has weighed heavily on financial stocks, with Wall Street also set to open lower.

Meanwhile the pound was lower after figures showing a drop in retail sales and a fall in manufacturing orders. The Office for National Statistics said retail sales dropped 0.4 percent in March from February, roughly in line with analysts' forecasts for a fall of 0.5 percent and the sharpest decline since the 1.7 percent fall in January 2007.

However the pound's falls were capped after sales growth in January and February was revised significantly higher. January's growth was pushed up to 1.5 percent from the previous reading of 1.1 percent and February's growth figure was increased to 1.1 percent from 1.0 percent due to an updated register of businesses.

"The 0.4 percent fall in UK retail sales volumes in March is not all bad considering it reverses only a fraction of the (upwardly-revised) rise over the previous 2 months," said Vicky Redwood at Capital Economics. However, she added that with other retail surveys painting a gloomy picture of the high street, consumer spending it set to wane.

Elsewhere, the Confederation of British Industry reported that manufacturers' order books fell sharply during April, but that inflationary pressures persist. In its monthly industrial trends survey, the Confederation of British Industry revealed that the balance of manufacturers who said their total order books during April were higher was - 13 percent.

That marked a 20 point swing -- the biggest since records began in April 1977 -- on March's + 7 percent. However, the average prices balance for the next three months was unchanged at the near 13-year high of + 25 percent.

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Euroshares open lower; slew of earnings including CS Group, Neste Oil

At 09:14 a.m., the DJ STOXX 50 was 31.78 points or 1 percent lower at 3,132.09, while the DJ STOXX 600 fell 2.83 points or 0.89 percent to 314.58.

On Thursday, investors will be examining profit reports from a slew of companies including Microsoft, Motorola, 3M and American Express that may help shape the market's overall perception of earnings.

World oil prices were steady near $120 in Thursday Asian trade on a mixed report on U.S. energy stockpiles. New York's main oil futures contract -- light sweet crude for delivery in June -- was down 21 cents to $118.09 per barrel.

Back in Europe, earnings season continues in full swing with the banking sector in the spotlight after Credit Suisse unveiled massive writedown-related losses in the first quarter. The news was however taken in a stride with the market and the stock only fell 0.7 percent in mid-morning trade after initially advancing.

Analysts noted that the massive write-downs of more than 5 billion Swiss francs were largely expected by the market following weekend media reports. "The writedowns were less than I expected, but higher than the consensus", Claudia Meier, an analyst at Bank Vontobel said.

"What can be said is that the weekend press had already speculated about writedowns of 5 billion Swiss francs and it looks like many (investors) were already prepared," she added. The analyst has a 'hold' rating on the stock.

Staying in Switzerland, engineering group ABB Ltd rallied 5.6 percent after it beat expectations with its first quarter profit, which rose 87 percent year-on-year. "The numbers were clearly ahead of even the highest analyst forecast," analyst Bert Fueglistaller at Oppenheim Research said, noting the performance of the automation unit was a particular surprise.

Over in Germany, Bayer added 2.7 percent after the chemical and pharma giant beat the consensus with solid sales and bottom-line figures in the first quarter. Also among pharmaceuticals, Danish enzymes maker Novozymes surged 8.23 percent after it posted a 2 percent rise in first quarter pretax profit to 352 million Danish crowns, above a market forecast of 331 million crowns.

"Now investors can breathe a sigh of relief. There was no downgrade of the outlook as many analysts had feared, and things are going well," Nordea analyst Bjarke Ostergaard told news agency RB-Borsen. On the downside, Nobel Biocare shed 11.37 percent after the Swiss dental implant maker cut its guidance for the full year and reported a 25.1 percent decline in net profit for the first quarter.

Meanwhile, UK data search company Autonomy plunged 13.28 percent after it released first quarter numbers. "The outlook statement is probably a little more cautious than people are used to with Autonomy. They're giving themselves room to upgrade if current conditions change but with no upgrade, a stock of this rating will see a fall of some order," a London-based analyst said.

And shares in Finnish refiner Neste Oil fell 6 percent after the group reported disappointing first-quarter earnings and warned on gasoline demand. Turning to economic news today, Germany's Ifo business climate index disappointed this morning.

The Ifo research institute said the index fell to 102.4 from 104.8 in March, well below analysts' forecasts of a decline to 104.3. The business expectations index, which measures expectations for the next six months, slid to 96.8 from 98.4 in March. The consensus was for a drop to 98.0.

Later in the day, investors are expected to cast an eye over to the United States, where data on durable goods orders for March, new homes sales and initial unemployment claims are due for release.

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Asian markets lose steam as credit fears return; Shanghai rally holds up

The S&P/ASX 200 closed down 1.2 percent at 5,587.3 and the All Ordinaries was down 0.9 percent at 5,658.7. Financials led the decline after Credit Suisse reported a first-quarter net loss of 2.148 billion Swiss francs, after a profit of 2.729 billion in the same period a year earlier. The bank said it took fresh writedowns of 5.281 billion francs on leveraged finance and structured products, bringing its total subprime-related losses to 8.468 billion francs.

Markets in Australia and New Zealand will be closed Friday for the ANZAC memorial day. ANZ Bank lost 2.4 percent to A$21.51 and National Australia Bank lost 2.4 percent to A$29.30.

The Nikkei closed a choppy session down 0.3 percent at 13,540.87 and the Topix was down 0.5 percent at 1,307.57, losing ground ahead of a slew of earnings. "Investors bought stocks in reaction to good news, but soon lost steam after turning cautious after bad news came out," said Shinko Securities Shinko Securities market analyst Yutaka Miura.

Steel issues were weaker with JFE Holdings closing down 2.6 percent at 5,320 yen and Nippon Steel 1.5 percent lower at 545 yen. Sumitomo Metal Industries was 2.1 percent lower at 414 yen. The Shanghai Composite closed up 9.3 percent at 3,583.03, while the Hang Seng closed up 1.55 percentt at 25,680.78.

The Chinese authorities lowered the stamp duty on stock transactions by a third to 0.1 percent of the value of each purchase or sale in their latest attempt to boost the market. The move comes after the China Securities Regulatory Commission on Sunday said it will restrict the sale of previously non-tradable shares emerging from lock-ups.

"The stamp duty cut did its job of boosting sentiment," said Peter Lai, investment manager at DBS Vickers in Hong Kong. Goldman Sachs said the news should boost trading volume and create a rally in the A-Share market.

"We believe China brokers will be one of the primary beneficiaries of the stamp duty tax cut in the near term in light of the high correlation between China broker share prices and the overall A-share market movement and trading turnover," analyst Richard Xu said in a note.

All three Shanghai-listed insurers rose by 10 pct. China Life Insurance closed at 32.87 yuan, while Ping An Insurance (Group) Co of China and China Pacific Insurance were at 27.35 and 66.78, respectively. Industrial and Commercial Bank of China, the country's largest commercial bank, added 7.92 percent to 6.81 yuan. The company said 2.8846 billion A-shares will come out of lockup and be available for public trading on April 28.

In Hong Kong, China Life was up 7.99 percent to HK$33.80 and Ping An Insurance rose 10.45 percent to HK$72.95. The Kuala Lumpur Composite ended up 0.4 percent at 1,293.08 and the Singapore Straits Times closed down 0.5 percent at 3,177.55.

The Philippines Composite added 0.7 percent at 2,844.02. Taiwan's weighted index closed down 0.2 percent at 8,990.33. Jakarta's composite index closed down 1.9 percent at 2,269.98 while South Korea's Kospi index closed down 0.1 percent at 1,799.34.

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Metals - Tin hits record high in London; rebound in dollar keeps metals in check

LONDON - Tin rose to a fresh record high in early London trade on Thursday, but a rebound in the dollar has weighed across the base metals complex, keeping gains in check.

As the dollar has strengthened off record lows, sentiment has been dampened as commodities priced in the U.S. currency become more expensive for holders of other currencies.

Tin and copper have found good support from supply concerns, which have helped to highlight low inventory levels. Tin has risen to a series of record highs this week due to lower imports out of key producers Indonesia and China, topping out at $24,600 this morning as investors scrambled to cover earlier bets the price would fall.

"Trying to pick the top of the market, especially one which has shown such good momentum, isn't a particularly attractive proposition, with intraday short-covering likely being one of the factors that has seen prices surge higher," said analysts at Standard Bank.

By 10.19 a.m., London Metals Exchange tin for three-month delivery had eased slightly to trade at $23,600 per tonne against Wednesday's close of $24,075 per tonne.

Tin inventories monitored by the LME have risen slightly today, weighing on prices. Stockpiles rose by 160 tonnes to stand at 7,950 tonnes in today's report from the exchange. Copper has been boosted by strikes at some of the largest mines in Chile, the world's number one exporter of the red metal.

Striking subcontractors at Codelco have shut the Salvador and Andina mines for the last eight days, while the company is looking to see if it can restart operations at its Teniente mine, which was closed on Monday after a worker was attacked. Chile's mines minister has said talks are progressing, but no firm deal appears to be in place yet.

A dip in copper prices yesterday has also encouraged some buyers in China to come back into the market, having previously been reluctant to buy with prices close to record levels. However analysts said many buyers in China were still hoping to see prices come back down below the $8,000 level before restocking.

Prices have been supported by a further dip in LME inventories, which fell 275 tonnes to 112,200 tonnes. Copper was trading at $8,565 per tonne against $8,555 per tonne at the close yesterday, having earlier touched an intraday high of $8,683 per tonne.

In other metals traded on the LME, lead for delivery in three months was trading at $2,765 per tonne against $2,809 per tonne, while zinc was almost unchanged at $2,240 per tonne from $2,241 per tonne. Nickel rose to $28,834 per tonne from $28,700 per tonne, while aluminium was trading at $3,075 per tonne against $3,096 per tonne at the close on Wednesday.

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