US & World Daily Markets Financial Briefing 25-03-2008

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Wall Street mixed after economic data

NEW YORK -  Wall Street was mixed Tuesday after a disappointing reading on consumer sentiment punctured some of the market's optimism of the past two sessions.

The market was reminded of the economy's ongoing problems when the Conference Board, a business-backed research group, said its Consumer Confidence Index plunged to 64.5 in March from a revised 76.4 in February. The reading -- a five-year low -- was far below the 73.0 expected by analysts surveyed by Thomson/IFR.

Investors also weighed a report on the housing sector showed a further pullback in home prices. The Standard & Poor's/Case-Shiller index shows U.S. home prices declined 11.4 percent in January from a year earlier.

Tight credit markets, rising prices and declining housing prices have consumers worrying about a recession. And, the stock market is in turn worrying that consumers will cut back their spending and further weaken the economy.

"What is troubling is that consumer confidence took a plunge, and I think we're going to see consumer spending weaken as we go forward," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners.

In addition, he said some profit-taking was to be expected on Wall Street after a two-day rally sent the Dow Jones industrial average up nearly 450 points. Stocks had charged higher in the days following the Federal Reserve's decision to aid investment banks and orchestrate a buyout deal for a near-collapsed Bear Stearns Cos.

In midday trading, the Dow fell 54.71, or 0.44 percent, to 12,493.93. Broader indexes were mixed. The Standard & Poor's 500 index dropped 1.14, or 0.08 percent, to 1,348.74; and the Nasdaq rose 2.72, or 0.12 percent, to 2,329.47.

Bond prices rose. The yield on the benchmark 10-year Treasury note fell to 3.48 percent from 3.55 percent late Monday. 

Concerns about consumer sentiment also drove down the price of oil, which in recent days remained over $100 a barrel. Light, sweet crude fell 33 cents to $100.53 a barrel on the New York Mercantile Exchange.

The mood on Main Street is key as consumer spending makes up about 70 percent of economic activity. Investors worry that consumers uneasy about the economy and their financial well-being are more likely to pare their spending.

The readings come a day after a surprise uptick in sales of existing homes helped send the Dow up 187 points.

In corporate news, JPMorgan Chase & Co. shares fell $1.16, or 2.6 percent, to $45.32 after a securities analyst said the bank will end up paying about $65 per share for Bear Stearns. That amount, which includes costs to bring the two companies together, was labeled too high a price for a "deeply troubled company," the Punk, Ziegel & Co. analyst said.

Bear Stearns fell 45 cents to $10.80 -- just above the $10 per share buyout price being offered by JPMorgan. There has been some speculation in the market that a higher offer might come before the deal closes.

Shares of Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. fell as Wall Street considers what a combined Sirius and XM would look like. The Justice Department approved Sirius' $5 billion buyout of XM on Monday. XM slid 22 cents to $13.57; while Sirius fell 2 cents to $3.12.

Yahoo Inc. rose 89 cents, or 3.2 percent, to $28.41 after on speculation Microsoft Inc. will raise its takeover price for the Internet company beyond $31 per share. Microsoft fell 14 cents to $29.03.

The Russell 2000 index of smaller companies fell 0.04, or 0.01 percent, to 701.24. Advancing issues barely outnumbered advancers on the New York Stock Exchange, where volume came to 539.7 million shares.

In afternoon trading, Britain's FTSE 100 fell 0.27 percent, Germany's DAX index rose 3.14 percent, and France's CAC-40 rose 3.11 percent.

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Dollar in retreat as global stocks surge

LONDON - Last week's gains in the dollar have been wiped out as investors in Europe returned from the long Easter holiday weekend keen to stake out new positions amid signs of a pick-up in risk appetite.

Analysts said dollar weakness is likely to remain the predominant theme in the markets. The US currency closed out last week quite strongly in light trade as traders squared up positions ahead of the Easter weekend. The euro fell back down toward the 1.54 usd mark at one stage.

The dollar has also suffered somewhat from the news that JP Morgan Chase has sweetened its bid for Bear Stearns, and US existing home sales in February were better than anticipated.

The combination of JP Morgan's higher offer and hopes that the US housing market may have turned the corner helped Wall Street post substantial gains yesterday, which was followed up on Europe's bourses today.

"Rebounding global stock markets is fuelling a return in risk appetite and demand for high-yielding currencies," said UBS currency strategist Geoffrey Yu. "The market is still looking for significant Fed cuts, which may solidify perception of the dollar as a funding currency," he added.

Though sentiment may have improved, evidenced most clearly on the world's stock markets, there are still concerns that there is a lot of bad news to come from the US housing and banking sectors, that could hit the dollar further.

"For the next few months at least the dollar is likely to remain weak as the incoming data confirm the economy is now in recession and the Fed is forced to cut rates even further," said Paul Ashworth, senior US economist at Capital Economics.

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Euroshares higher midday as Dow set for more gains; financials lead rally

LONDON - European bourses continued to gain midday as the Dow looks set to add to recent gains with financials among the top gainers in Europe amid renewed confidence in the sector.

At 11.41 am, the STOXX 50 was up 94.22 points, or 3.2 pct, at 3035.54 and the STOXX 600 was up 9.32 points, or 3.14 pct, at 306.15.

In Europe, Societe Generale added 6.07 pct, Deutsche Boerse added 7.04 pct and Aegon was up 5.27 pct after sharp gains on global markets and especially by their US sector peers, and further lifted by a bullish article in Barron's magazine. The Dutch insurer was also lifted by bullish comment from Goldman Sachs.

Credit Suisse shares, up 7.22 pct, recovered some of the ground lost after Thursday's profit warning. However, many analysts remain cautious and UBS and Commerzbank both downgraded the shares today.

Among UK banks, HBOS bounded 13.67 pct higher in early trade as news of a 5.7 mln stg purchase of stock by the bank's senior managers bolstered investor confidence in the group, hit last week by false rumours of a Bank of England bailout.

Barclays added 9.38 pct as Merrill Lynch reiterated its 'buy' stance on the group after recent sector falls.

In M&A news, Telecom Italia climbed 6.26 pct after weekend reports it has received three offers for its Alice France unit, valuing the division at some 800-900 mln eur.

And Infineon was up 6.84 pct after Nanya said Infineon controlled Qimonda and Nanya are discussing various options on strategy for their Taiwan joint venture Inotera Memories Inc, including a sale of the venture to Nanya.

Danone added 2.22 pct as ABN Amro suggested the group would easily find a buyer for its beverages business and could use the proceeds to buy Bristol-Myers Squibb's Mead Johnson baby food business.

Shares in Adidas were 6.48 pct higher after the sports equipment manufacturer said it is hiking its 2008 currency-neutral sales guidance for its Reebok unit and now sees mid to high single-digit percent growth.

The news also lifted PPR -- which bought sportswear group Puma last year. Speculation that the group may be mulling the sale of its FNAC unit to focus on high margin luxury goods also boosted the stock. PPR shares added 6.87 pct.

LVMH shares moved 6.31 pct higher, Bulgari shares added 6.3 pct and Burberry shares added 5.13 pct after gains by Tiffany overnight. The US jewellery group numbers beat analyst expectations and the group raised its outlook for this year. The revised guidance topped Wall Street expectations, and its shares climbed almost 13 pct.

But Clarins underperformed its sector, adding only 1.82 pct, as SG Secs cut its rating on the French cosmetics group to 'hold' from 'buy'.

Elsewhere, Saint-Gobain added 5.73 pct. The French building materials giant said this morning it has reached an agreement with its largest shareholder, investment holding company Wendel, over Wendel's stake in Saint-Gobain as well as the double voting rights attached to some Saint-Gobain shares. SG Secs upped its rating on Wendel to 'hold' vs 'sell'.

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Asian stocks rally as US home sales data ease worries; Hong Kong leads

SINGAPORE - Stock markets across Asia rallied Tuesday with Hong Kong, India and Australia leading the advance, as investors returned from the Easter holiday to catch up on gains made in the US and other regional markets on Monday.

The Hang Seng closed up 6.43 percent at 22,464.52. The S&P/ASX 200 closed up 3.7 percent at 5,318.4 and the All Ordinaries was up 3.3 percent at 5,355.7.

National Australia Bank closed up 5.1 percent to 30.60 dollars and Commonwealth Bank of Australia ended up 8 percent to 42.45 dollars. Commonwealth Bank said earlier it will book a pre-tax gain of approximately 355 million Australian dollars from its shareholding in Visa Inc, which started trading on the New York Stock Exchange last week.

Bank of East Asia was the most impressive gainer in Hong Kong, adding 9.39 percent to 38.45 dollars.

In Tokyo, the Nikkei closed up 2.1 percent to 12,745.22 and the Topix was up 1.5 percent at 1,242.98. Exporters, including Canon and Toshiba, rose as the dollar strengthened to above 100 yen following the housing data.

Elsewhere, the Singapore Straits Times index ended up 2.5 percent to 3,000.19 and the Malaysian KLSE composite rose 2.4 percent to 1,229.95.

The Philippines Composite finished up 0.9 percent to 2,892.20 and the Korean Kospi closed up 1.2 percent at 1,674.93.

The Shanghai Composite Index closed higher by 0.09 pct at 3,629.62. However, oil majors came under pressure from their inability to raise prices. PetroChina closed down 4.41 percent at 19.01 yuan, after hitting a new all-time low of 18.74.

China Petroleum & Chemical Corp (Sinopec) was down 3.15 percent at 12.62 yuan. The companies have been instructed by the government to ensure the supply of key oil products to ensure domestic price stability. That directive requires them to import or buy product from local producers at prices that often guarantee a loss.

Taiwan's weighted index lost 0.79 percent to 8,795.09, surrendering some of the gains made Monday after opposition candidate Ma Ying-jeou's landslide victory in the weekend presidential election. Indonesia's Jakarta composite index closed up 3.4 percent at 2,419.62. Easing concerns

The Bombay Stock Exchange's (BSE) 30-share benchmark index, the Sensex, ended up 928.09 points or 6.07 pct to 16,217.49 while the broader 50-share S&P CNX Nifty of the National Stock Exchange (NSE) rose 5.81 pct to 4,877.50 points.
   
Each of the 13 sector indices on the BSE gained by at least 2 pct in the buying spree led by realty, which leaped 9.48 pct. All 11 constituents of the realty gauge advanced with heavyweight DLF Ltd surging almost 13.50 pct to 678.65 rupees. The banking index, or Bankex, and the consumer durables index also shot up more than 8 pct.
   
All BSE-30 shares advanced led by Jaiprakash Associates Ltd, an integrated engineering construction subsidiary of the diversified Jaypee Group, which gained 16.38 pct to close at 233.10 rupees. The company is reportedly planning to raise 11.5 bln rupees through equity and debt -- by selling a percent in unit Jaypee Infratech for 2.5 bln rupees and borrowing 9 bln rupees as a long-term loan from the country's largest private bank ICICI Bank Ltd.

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Gold steady, continuing recovery from pre-Easter blues

LONDON - Gold remained up on the day, continuing its rally following a pre-Easter sell-off. At 1.25 pm, spot gold was trading at 930.85 usd an ounce, against 918.00 usd in late New York trade yesterday, and after peaking just above 934 usd this morning.

Analysts said the weaker US dollar -- for which gold is seen as an alternative investment -- helped the yellow metal higher, as did strong demand after recent corrective price falls. Gold fell more than 10 pct last week from a peak of 1,032.50 per ounce -- an all-time high -- to a trough of just under 910 usd.

"This morning, a weaker US dollar and bargain hunting from jewellers lifted gold," said Peter Fertig at Dresdner Kleinwort. Fertig said a rebound in market confidence, evidenced by strong gains on stock markets today, could put gold under pressure. "This might be negative for gold as investors are likely to channel more funds from safe havens like gold back into risky assets," he said.

Heightened confidence in the US economy and the wider financial system emerged as JPMorgan raised its offer for stricken peer Bear Stearns by a factor of five, to 10 usd a share from 2 usd previously.

Other precious metals were also recovering from sharp losses made before the weekend.

Platinum was trading up strongly at 1,943 usd an ounce against 1,879 usd. The metal's steady rise followed a sharp sell-off late last week after signs emerged that power supplies are stabilising in South Africa.

The metal had soared in recent weeks due to power shortages in South Africa that impeded mining operations. Moore at TheBullionDesk.com said these issues are likely to persist, giving support to platinum through the rest of 2008.

"Supply disruptions in South Africa and strong investment demand will continue to underpin the platinum market, which will see a substantial supply deficit this year," Moore said.

Elsewhere, silver was up at 17.42 usd an ounce against 17.10 usd. Palladium remained marginally up on its late New York levels, at 440 usd an ounce against 431 usd.

At 1.09 pm, LME copper for three-month delivery was up at 8,132 usd per tonne against 7,840 usd at the close on Thursday, prior to the Easter break. Prices had been easing last week due to fund liquidation witnessed across the commodities spectrum, as some of the speculative flows which have boosted markets since the start of the year decided to cash in profits.

Metals analyst William Adams at Basemetals.com said: "Given the confidence boost seen on Wall Street it does look like a relief rally is set to get going across the markets and with tight fundamentals in the likes of copper and tin, these metals may lead the recovery."

But he added sentiment remains vulnerable in the current volatile economic climate, so the move back higher may be difficult to maintain.

Prices have taken support from declining stockpiles of the red metal at LME-monitored warehouses. Copper stockpiles declined by a further 1,700 tonnes to stand at 120,175 tonnes in today's report from the LME.

Declining stockpiles point to the continued strength of demand out of countries such as China, the world's largest consumer of copper. The copper market is predicted to remain tight in the coming years by many analysts, as production struggles to keep pace with booming demand from rapidly developing economies.

In other traded metals, tin was up to 20,050 usd per tonne, basis three months, against 19,900 usd, nickel rose to 29,800 usd per tonne against 28,550 usd, aluminium was up to 2,943 usd per tonne against 2,843 usd, while zinc climbed to 2,360 usd per tonne from 2,270 usd. Lead traded at 2,809 usd per tonne against 2,714 usd.

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