US & World Daily Markets Financial Briefing 25-04-2008

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Stocks decline as consumer confidence falls to 26-year low

NEW YORK - An early advance fizzled on Wall Street Friday after a consumer sentiment reading fell to its lowest level in more than 25 years and a disappointing forecast from Microsoft Corp. weighed on technology issues.

The Reuters/University of Michigan consumer sentiment index came in at 62.6 for April, down from 69.5 a month earlier -- and the lowest reading since the early 1980s -- as Americans contended with rising energy and food prices. Consumers' flagging mood is worrisome for Wall Street because consumer spending accounts for about 70 percent of U.S. economic activity.

Microsoft said after the closing bell Thursday that worldwide sales next year should offset weakness in the U.S. economy. Still, investors appeared unimpressed by Microsoft's forecast for the current quarter and its revenue figures.

In midmorning trading, the Dow Jones industrial average fell 24.50, or 0.19 percent, to 12,824.45. Broader stock indicators fell. The Standard & Poor's 500 index declined 0.37, or 0.03 percent, to 1,388.45, and the Nasdaq composite index fell 21.18, or 0.87 percent, to 2,407.74.

Declining issues outnumbered advancers by about 5 to 4 on the New York Stock Exchange, where volume came to 217.5 million shares.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.86 percent from 3.83 percent late Thursday.

Light, sweet crude rose $1.64 to $117.70 on the New York Mercantile Exchange after a militant group in Nigeria said it had sabotaged an oil pipeline.

In corporate news, Goodyear Tire & Rubber Co. rose $1.97, or 7.1 percent, to $29.22 after posting a first-quarter profit amid increased revenue. The tiremaker, which reported a loss for the same period a year earlier, said it focused on higher-priced tires and international markets.

American Express Co. rose 98 cents, or 2.2 percent, to $46.16 after reporting its first-quarter earnings fell 6 percent as more U.S. cardholders failed to make their payments. The credit card lender's total provisions for credit losses jumped 48 percent from a year earlier to $1.27 billion. However, the company said cardholders are continuing to spend and that strength abroad has helped make up for troubles in the U.S.

The Russell 2000 index of smaller companies rose 3.89, or 0.53 percent, to 713.29. Overseas, Japan's Nikkei stock average closed up 2.28 percent. In afternoon trading, Britain's FTSE 100 rose 0.08 percent, Germany's DAX index advanced 1.32 percent, and France's CAC-40 rose 1.12 percent.

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Forex - Euro falls, pound surges as investors reassess rates outlook

LONDON - The euro continued to drop while the pound rallied, as investors reconsider their forecasts for interest rates in the euro zone and United Kingdom.

Softer economic data from the euro zone -- with the German Ifo indicator falling unexpectedly on Thursday and M3 money supply easing to an annual rate of 10.3 percent in March -- has cast doubt on the ability of the region to 'de-couple' from the U.S. recession and global financial crisis.

Meanwhile, the pound has surged despite data showing first quarter GDP slowed to a three-year low of 0.4 percent, down from 0.6 percent in the previous quarter. Some experts noted the pound rallied on relief from investors who were braced for a worse growth figure, while others noted that it is a technical correction of previous losses.

"A lot of negative news for the pound was priced in but not much for the euro -- now that situation is being reversed," said Hans Redeker, head of forex strategy at BNP Paribas.

Financial markets have moved from pricing in a European Central Bank rate hike later this year to considering a cut by 2009. The pound, on the other hand, is benefiting from the view that the Bank of England may be able to focus more on inflation if its plan to boost lending in the banking sector proves effective. "The debate on monetary policy is shifting because of the liquidity schemes," said Redeker.

BoE rate-setters, who on Wednesday were shown to have been split three ways on cutting interest rates, have continued to stress the dangers of inflation. The fact that GDP did not collapse this morning may have yet supported the view that interest rates will not be cut next month, but only in June at the earliest.

The dollar, meanwhile, has been supported by the belief that the Federal Reserve will stop cutting interest rates after next week's meeting. A stabilisation in U.S. equity markets -- despite persistently poor economic data -- suggests the Fed may consider another rate cut to be enough to support growth, particularly in view of the threat of high inflation.

The final figures for the University of Michigan consumer confidence indicator later in the day are unlikely to alter the dollar's run. There is no market expectation of a revision to the preliminary reading of 63.2, and analysts believe that even a downward revision is unlikely to weigh much on the dollar, considering the current positive mood surrounding the greenback.

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Euroshares open up; techs, autos, staffing earnings in focus

At 9:00 a.m., the DJ STOXX 50 was up 39.96 points or 1.26 percent to 3,206.25, while the DJ STOXX 600 added 3.27 points or 1.03 percent to 320.92.

In Europe, the technology sector is in the spotlight this morning, up 3.9 percent in aggregate according to the DJ STOXX 600 for the industry, following a bullish outlook from U.S. peer Microsoft Corp. and solid earnings from South Korea's Samsung Electronics Co overnight.

In addition, Swedish handset maker Ericsson released solid first-quarter profit and margins figures that exceeded analyst expectations by a wide margin. Its shares rallied 20 percent. Analysts at Carnegie especially noted improvements in margins and said the results at the operating level were much higher than the broker had expected.

Over in the automotive sector, earnings results from MAN and Volvo are in focus. MAN AG added 2.45 percent after it raised its outlook and unveiled a stellar set of earnings, with operating profit in the first quarter reaching 455 million euros, well ahead of the 380 million euros seen by analysts.

Peer Volvo climbed 5.7 percent after it raised its guidance for the European truck market and said profits rose 14 percent in the first quarter. "It looks like a strong report," analyst Johan Trocme at Nordea Markets said. "Only truck orders in Europe are a cause for concern. He also noted the group raised its guidance for the European market and said it had not even opened order books in some European markets.

Meanwhile, shares in flag airline Deutsche Lufthansa were in demand, up 2.5 percent after posting strong first-quarter results and affirmed its full-year operating profit guidance. "They key number, operating income, was better than our estimate," said Citigroup analyst Andrew Light.

Staying in earnings news, ProSiebenSat.1 Media AG. was out of favour this morning, after the company posted disappointing first-quarter results last night and announced plans to restructure its German advertising sales business.

Merrill Lynch in reaction reiterated its 'buy' rating, but mentioned a risk to its 22 euros price target due to competition from other channels and a potential slowdown in advertising momentum. "The main problem is that the miss is self inflicted not reflective of a deteriorating economy, which could impact revenues in H2," analyst Julien Roch said in a first reaction.

The stock performed a 26 percent nosedive this morning. Another slumping stock was Swedish Match, which shed 5.19 percent after the tobacco products company reported weaker-than-expected first-quarter results, which also unveiled weakening margins.

Turning to economic news, investors are expected to cast an eye over to the U.S. later today where the final reading for the University of Michigan survey of consumer sentiment for March is expected to be left unrevised from the preliminary reading of 63.2.

Jay Bryson of Wachovia said he is uncertain which direction any revision will go, but either way any change likely will be small. "Maybe it bounces up a little bit, because it looks like financial markets have improved a bit, but so have oil markets," he said.

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Asian stocks mixed; Shanghai dips after rally

The Nikkei closed up 2.4 percent at 13,863.47, while the broader Topix rose 2.5 percent to 1,339.91. The dollar gained against the yen and other majors, boosting Japanese export stocks. Canon closed up 4.5 percent to 5,400 yen, Honda Motor was up 3.7 percent at 3,330 yen and Toyota rose 3.1 percent to 5,290 yen.

The Kospi finished up 1.4 percent at 1,824.68 as investors shrugged off data showing a slowdown in economic growth to focus on stronger-than-expected earnings from Samsung Electronics. The Bank of Korea said the economy grew a seasonally adjusted 0.7 percent in the first quarter from the fourth quarter, its slowest pace of expansion since the fourth quarter of 2004.

Samsung Electronics Co. Ltd. reported a stronger-than-expected quarterly result, offsetting downbeat results from Hynix Semiconductor Inc. and KT Corp. Samsung Electronics shares closed up 4.4 percent at 690,000 won.

The Kuala Lumpur Composite was down 0.4 percent at 1,288.08 and the Singapore Straits Times Index rose 0.4 percent at 3,189.20. The Jakarta index closed down 1.3 percent at 2,240.58. The Shanghai Composite lost 0.7 percent to 3,557.75, the Taiwanese Taiex dipped 0.5 percent to 8,947.83 and the Hang Seng closed down 0.6 percent at 25,516.78.

The Shanghai benchmark gained 9.3 percent on Thursday, its biggest single-day rise since Oct 23, 2001. The move helped the Hong Kong market to a fourth day of gains. Oil was trading just above $115 a barrel in Asian trade, cooling from highs close to $120 earlier this week.

Nonlife insurer Millea Holdings gained 6.3 percent to 4,250 yen, while Sompo Japan rose 6.3 percent to 1,129 yen, and Mitsui Sumitomo Group Holdings advanced 6.3 percent to 3,910 yen. Big banks were firmer with Mizuho Financial up 7.3 percent at 483,000 yen, Sumitomo Mitsui Financial up 6.1 percent at 821,000 yen and Mitsubishi UFJ Financial up 4.4 percent at 1,040 yen.

General leasing firm Orix advanced 4.1 percent to 17,460 yen. In Hong Kong, Air China rose 2 percent to HK$6.16 after reporting that net profit more than doubled in the first quarter as the continued expansion of the Chinese economy boosted demand for air travel.

Other airlines were also higher. The nation's top carrier, China Southern Airlines, gained 1.4 percent to HK$5.13, while China Eastern Airlines rose 0.6 percent to HK$3.33.

Elsewhere, Hynix Semiconductor fell 1.4 percent to 28,100 won after posting a parent-level operating loss of 505.1 billion won for the first quarter. KT lost 1.5 percent to 47,400 won after Korea's largest fixed-line telephony service provider said net profit fell 60 percent to 154.1 billion won in the first quarter, as marketing costs ballooned.

Kia Motors jumped 4 percent to 12,900 won. The carmaker reported an operating profit of 101.9 billion won for the first quarter, reversing a loss of 73.7 billion won a year ago, thanks to the launch of new car models and a weaker currency.

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Oil jumps ahead of weekend as market frets over supply woes in UK, Nigeria

LONDON - Oil surged as players fretted over output heading into the weekend, with strike action in the United Kingdom and Nigeria likely to squeeze supply further.

The supply concerns come at a time when demand from the U.S. is just about to pick up as the driving season in the world's biggest consumer kicks off next month, and as demand from fast-growing Asian nations like India and China shows little sign of abating in spite of the credit crunch.

The main focus is on Scotland's Grangemouth refinery where a strike due to start Sunday is expected to squeeze British fuel supply, possibly for some months. Workers at the plant, west of Edinburgh in Scotland, are refusing to work on Sunday and Monday.

As a result, energy giant BP Plc has confirmed that its 725,000 bpd Forties Pipeline System (FPS) will be completely shut down by Saturday evening.

"The complex appears poised for a volatile finish to this week as a further strengthening in the U.S. dollar goes head to head with ongoing supply issues in the UK and Nigeria," said James Ritterbusch, head of Ritterbusch and associates.

Meanwhile, Nigeria's Pengassan oil workers union claims that a strike against Exxon Mobil has forced the company to shut in 200,000 bpd of production capacity. Also in Africa's biggest oil producer, the Movement for the Emancipation of the Niger Delta has claimed responsibility for an attack Thursday evening on a Shell Nigeria pipeline, the fourth attack within the past week.

At 3:15 p.m., U.S. crude for June delivery was up $1.72 at $117.78 a barrel. On Tuesday, the May contract hit a record $119.90. London Brent crude for June delivery was up $1.66 at $116.00, just 87 cents off a historic peak set earlier this week.

This week, prices have rocketed to historic peaks as investors seized on mounting supply worries and the weak U.S. currency, which makes dollar-priced crude cheaper for foreign buyers and tends to encourage demand. Also, OPEC, which pumps more than a third of the world's oil, insisted again that it was not responsible for high prices, that the world is amply supplied with oil and that it was unlikely to raise production ahead of its official September meeting.

While sentiment for the dollar has picked up now the currency is some way above its recent record lows, supply concerns in oil are leading the market at a time of strengthening demand. The losses in demand from the credit crunch are likely to be made up by fast growing Asian countries, analysts said.

Some analysts and traders had said $120 was on the cards earlier this week. Nijjar at CMC said "$120 is still there," adding "Everyone is still bullish."

Meanwhile, equity markets have stabilised of late as investors expect the rate cuts and special measures so far enacted by the Fed and the U.S. government to help the banking and mortgage markets are working, allowing the Fed to pay more attention to inflation risks.

This positive sentiment had reduced the appeal of commodities as alternative assets. Though this perception saw oil lower in the session earlier, players fretting over supply heading into the weekend are back buying into the market.

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