US & World Daily Markets Financial Briefing 24-07-2008

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Stocks fall after sales of existing homes decline

NEW YORK - Stocks skidded lower Thursday after a steeper-than-expected decline in existing home sales wiped away some of the market's optimism about upbeat earnings reports.

The National Association of Realtors said sales resumed their decline in June after a slight rebound in May. Sales fell by 2.6 percent in June, well beyond the 1 percent drop economists had forecast.

The sales drop was a reminder that the housing market, and the overall economy, is still far from healthy. And that persuaded many stock investors to cash in some of their gains from a rally that began last week.

Investors were also absorbing a mixture of earnings reports from names like Ford Motor Co., which reported a big loss, and Dow Chemical Co., which said higher costs for raw materials sent earnings down sharply. But drug makers Bristol-Myers Squibb Co. and Eli Lilly & Co. both reported higher earnings as the weak dollar boosted foreign sales, and Amazon.com Inc. turned in a solid report that beat expectations.

Analysts have said that so far, the second-quarter earnings reports have been better than many investors expected. That had lifted the market's mood in recent sessions.

In midmorning trading, the Dow Jones industrial average fell 137.76, or 1.18 percent, to 11,494.62. The blue chip index rose nearly 170 points the past two days, so a pullback as part of the normal ebb and flow of trading wouldn't have come as a surprise.

Broader stock indicators also declined Thursday. The Standard & Poor's 500 index fell 10.84, or 0.85 percent, to 1,271.35, and the Nasdaq composite index declined 23.16, or 1.00 percent, to 2,302.72.

Stocks rose sharply the past two sessions as the price of oil continued its decline. The price is now down more than $20 after just weeks ago hitting a record above $147 a barrel. Oil rebounded Thursday, however with a barrel of light, sweet crude rising 86 cents to $125.30 on the New York Mercantile Exchange.

Bond prices rose Thursday after the housing report sent some investors looking for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.06 percent from 4.12 percent from late Wednesday.

The dollar was mixed against other major currencies, while gold prices rose. In corporate news, Ford said it lost $8.67 billion in the second quarter, largely because of a reduction in the value of assets. The company also said it will bring six European small car models to North America by the end of 2012 as it adjusts production because of high gasoline prices. The stock fell 38 cents, or 6.3 percent, to $5.65.

Dow Chemical fell 32 cents to $33.92 after reporting sharply higher costs for energy and raw materials contributed to a 27 percent decline in profit.

Drug makers Bristol-Myers and Eli Lilly reported higher earnings as the weak dollar boosted foreign sales and several key drugs saw big jumps in U.S. sales. Bristol-Myers beat expectations with an 8 percent rise in quarterly profit, while Eli Lilly reported a 44 percent rise in profit that narrowly missed forecasts. Bristol-Myers rose 25 cents to $22.14 and Eli Lilly advanced 22 cents to $47.84.

Industrial conglomerate 3M rose 83 cents to $71.63 after reporting its second-quarter profit rose slightly on strong double-digit growth in international markets.

Amazon.com jumped $9.11, or 13 percent, to $79.65 after reporting late Wednesday that second-quarter earnings more than doubled to easily top analysts' expectations. The Internet retailer also raised its full-year revenue projections.

The government reported that the number of people filing first-time claims for unemployment benefits bolted past 400,000 last week as companies trimmed their work forces to cope with a slowing economy. The Labor Department reported that these new applications rose by 34,000 to 406,000 for the week ending July 19. That matches the level seen in late March. The last time claims were higher was after the devastation of the Gulf Coast hurricanes in mid-September 2005. Then, they spiked to 425,000.

Declining issues outnumbered advancers by about 9 to 5 on the New York Stock Exchange, where volume came to 262.2 million shares.

The Russell 2000 index of smaller companies fell 4.10, or 0.58 percent, to 715.02. Overseas, Japan's Nikkei stock average rose 2.18 percent. In afternoon trading, Britain's FTSE 100 fell 0.57 percent, Germany's DAX index shed 1.16 percent, and France's CAC-40 fell 1.13 percent.

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Forex - Euro in retreat after soft European data; attention moves to US data

LONDON - The euro remained on the backfoot after disappointing economic news dampened prospects of a interest rate rise by the European Central Bank.

The euro zone composite PMI, which incorporates both the manufacturing and services sectors, fell to 47.8 in July from 49.3 in June. The fall took the index to its lowest since November 2001 and further below the key 50 dividing line between expansion and contraction.

The services PMI slipped to a five-year low of 48.3 in July from 49.1 in June, while the manufacturing PMI dropped to 47.5 from 49.2. All the figures were below expectations. Economists polled by Thomson Financial News were looking for a reading of 48.6 for the manufacturing PMI, 48.7 for the services PMI and 48.9 for the composite index.

Meanwhile, the Ifo institute's German business climate index and business confidence indicators from France and Italy also fell sharply.

"The latest very weak survey data from the euro zone will surely prevent the European Central Bank from raising interest rates further," said Capital Economics analyst Ben May. "On the face of it, the surveys suggest there is now even a risk of a technical recession in the region," he added.

Elsewhere, the dollar continued to be propped up by falling oil prices and recent hints from U.S. rate setters that interest rates in the world's biggest economy may have to rise further.

Attention this afternoon will be on U.S. housing and jobless claims data, in light of the dollar's sharp improvements this week. Meanwhile, the number of individuals filing first-time claims for unemployment are expected to have increased to 375,00 during the week ending July 19.

Existing home sales in June are expected to continue their steady decline, to a 4.940 million unit annual rate from 4.990 million annual units. "Should U.S. data beat expectations and stock markets & oil continue to support the dollar, then levels sub-$1.5650 (for the euro) will come back into focus," said Thomson IFR Markets analyst Matthew Foster-Smith.

At 11.54 GMT, the euro was trading at $1.5670, having started the European session at around the $1.5700 mark, before plummeting to $1.5636 after the PMI and Ifo news. Separately, the pound also fell prey to weak data, this time on the state of UK retail sales which suffered a massive slump in June.

Retail sales in the UK plunged in June by their biggest amount since records began in 1986 but inflationary pressures, particularly within food, continue to mount, official figures showed today. The office for National Statistics said retail sales in June dropped by 3.9 percent, more than reversing the upwardly-adjusted 3.6 percent increase recorded for May.

The scale of the reversal was bigger than anticipated. Analysts polled by Thomson Financial News were expecting a 3.0 percent decline. The pound fell to a low of $1.9830 against the dollar from $1.9880 ahead of the data, before settling around $1.9855 at around 11.54 GMT. The euro, meanwhile, rose to a high of 0.7896 pounds from 0.7874.

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Euroshares down, hit by oils, car manufacturers; banks, telcos outperform

LONDON - Europe's leading indices fell back in morning deals Thursday, with strong performances among the banking and telecoms sectors helping to offset falls in oil & gas plays and auto manufacturers.
   
At 9:52 a.m., the Dow Jones STOXX 50 was down 10.33 points, or 0.3 percent, at 3,377.17 and the Dow Jones STOXX 600 slipped 1.82 points, or 0.63 percent, at 284.95.
      
In Europe, telecoms was one of only a few sectors to make headway, with the DJ STOXX 600 Telecoms up 0.74 percent as Mobistar reported solid figures for the first half of 2008. The results for the first half of 2008 "were clearly stronger than anticipated", Rabo Securities analysts said.
   
Mobistar shares jumped 7.5 percent, while others in the sector also gained, with KPN up 0.9 percent, BT Group 0.9 percent higher and Belgacom rising 0.7 percent. But Vodafone Elsewhere, a number of financial stocks were in demand after Credit Suisse posted better-than-expected second quarter earnings.
   
The Swiss banking giant traced the gains to strength in its wealth management business amid negligible group-wide writedowns, as it unveiled significant cuts in its risk exposure since March. A Frankfurt-based trader said the promising numbers at the Swiss banking peer were positive for nearly all German financials, but especially those like Deutsche Bank, which are actively involved in trading.
   
Credit Suisse shares gained 5.0 percent, Deutsche Bank was up 1.3 percent, Societe Generale added 1.0 percent and Credit Agricole ticked up 3.6 percent. The latter was helped further by Morgan Stanley resuming coverage with an 'overweight' rating and 18 euros price target.
   
And financials also received a fillip after Morgan Stanley upgraded its sector rating for European financials to 'in-line' from 'cautious'. It also raised London Stock Exchange to 'equal-weight' from 'underweight' on valuation grounds but said it prefers Deutsche Boerse.
   
London Stock Exchange surged 9.0 percent, while Deutsche Boerse was 1.5 percent ahead. Lloyds TSB, meanwhile, lost 0.8 percent after Citigroup downgraded its recommendation to 'hold' from 'buy' as part of a UK banks note in which the broker also cut target prices across the board pointing to balance sheet
worries.
   
Elsewhere among fallers, the oil & gas sector was worse off as individual stocks tracked recent declines in the oil price. Oil is down more than $20 a barrel since hitting a record above $147 just weeks ago. A barrel of light, sweet crude fell $3.98 to settle at $124.44 a barrel on the New York Mercantile Exchange Wednesday.
   
The DJ STOXX 600 Oil & Gas fell back 1.9 percent, with Total down 2.0 percent, Royal Dutch Shell 1.3 percent weaker, Repsol YPF sliding 1.9 percent and StatoilHydro off 1.2 percent.
   
Finally, having initially enjoyed news of better-than-expected first-half numbers from Renault, shares in car manufacturers fell back in midmorning deals after the French car maker's CEO said he sees no recovery in the European market in 2009 and expects China car market growth could be 5-10 percent rather than 20
percent previously thought.
   
Renault shares lost 1.6 percent, while Peugeot -- which Wednesday jumped on the back of its own forecast-beating numbers -- eased 1.9 percent, and Fiat slipped 2.1 percent. On the economic front, investors were disheartened after euro zone services and manufacturing activity contracted sharply in July, sources said of a key survey.
   
The euro zone Purchasing Managers Index for services slipped to a five year low of 48.3 in July from 49.1 in June. Euro zone manufacturing activity also slumped, falling to 47.5 from 49.2 in June. Both figures were below expectations.

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Asian stock market summary

JAPAN

The Nikkei 225 Stock Average finished up 2.2 percent at the day's high of 13,603.31, with exporters like Toyota and Toshiba leading the way on a weaker yen.

SOUTH KOREA

The KOSPI index closed up 2.2 percent at 1,626.14, extending the previous session's rally, as foreign investors were net buyers for the first time in 34 days after oil dropped sharply overnight.

AUSTRALIA

The benchmark S&P/ASX 200 index closed 38.8 points up at 5,144.1, as hopes of a bailout for the two top U.S. mortgage lenders lifted financial firms, though falls in commodity prices dented the resource sector.

CHINA

The benchmark Shanghai Composite Index closed up 2.55 percent at 2,910.29, as crude oil prices fell further.
 
Investors were also encouraged by U.S. Congress moves to rescue troubled mortgage companies Fannie Mae and Freddie Mac. Financial and property stocks led the gains Thursday.
   
The Shanghai A-share Index rose 2.56 percent to 3,053.09, while the Shenzhen A-share Index was up 2.44 percent at 909.11. The Shanghai B-share Index was up 1.12 percent at 216.15, while the Shenzhen
B-share Index rose 2.03 percent to 470.01.

TAIWAN

The weighted index closed up 0.80 percent at the day's high of 7,368.08, as oil prices fell further and worries eased over US financial sector troubles. Tourism and construction stocks led the gains, while technology firms also supported.

PHILIPPINES

Manila's 30-company composite index rose 3.0 percent to 2,535.91, as investors cheered the continued pullback in crude oil prices and ignored a signal from the central bank that key interest rates might be raised further to combat inflation.
   
The drop in oil prices from the all-time peak above $147 a barrel on July 11 has stoked optimism that economic conditions in the second half would improve.

HONG KONG

Hong Kong shares closed a volatile session lower on Thursday as investors used the jump in oil prices in the afternoon as an excuse to pocket recent gains.

The Hang Seng Index fell 46.83 points or 0.2 percent to end the session at 23,087.72, reversing a 0.6 percent rise at the midday close. A total of HK$77.25 billion worth of shares were traded, up from HK$75.79 billion on Wednesday.
   
The market rallied 2.7 percent Wednesday, with the key index hitting a five-week high after oil prices dipped in recent sessions. The market may gain ground Friday if Wall Street remains upbeat.

INDIA

India's benchmark index, the 30-share Sensex of the Bombay Stock Exchange, fell 165.27 points or 1.11 percent to close at 14,777.01 and the 50-share S&P CNX Nifty of the National Stock Exchange dipped 43.25 points or 0.97 percent to

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Metals - Copper ticks up on bargain hunting but outlook weak

LONDON - Copper ticked up Thursday after heavy losses the day before on bargain hunting but the outlook remained weak amid falling commodity prices, which damps sentiment, weak economic growth and some strength in the dollar.

Copper tumbled 2 percent yesterday, from the highs, as oil prices fell further away from the July 11 high of $147 per barrel, and as the dollar strengthened.

The dollar continued Thursday continued to be propped up by falling oil prices and recent hints from U.S. rate setters that interest rates in the world's biggest economy may have to rise further.

"The firmer US dollar and falling crude oil prices had a negative impact on copper and aluminium," noted Peter Fertig, Dresdner Kleinwort analyst. He added that increasing stocks are also weighing the metal down.

The LME said Thursday, in a daily report, that copper stocks across the globe rose some 1,425 tonnes and now stand at 130,875 -- the highest level in several months.

At 11:41 a.m., three-month copper on the LME rose to $8,095 per tonne from $8,080 at the close Wednesday. Aluminium was higher at $3,015 per tonne, basis three months, from $3,006.

Nickel sank to $19,650 per tonne, basis three months, from $19,950, zinc was up at $1,940 per tonne from $1,925, tin eased to $22,900 per tonne from $23,100 and lead fell to $2,190 per tonne from $2,212 at the close Wednesday.

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