US & World Daily Markets Financial Briefing 25-06-2008

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US May new home sales down 2.5 pct to 512,000 unit annual pace

U.S. shares were higher amid expectations the Federal Reserve will leave its key interest rate unchanged at 2 percent when it announces its decision later on Wednesday after the UK market closes.
   
In early trade, and just before the release of home sales data, the Dow Jones Industrial Average was up 37.8 points at 11,845.2, while the S&P 500 was up 9.75 points at 1,324.05 and the Nasdaq Composite was 23.49 higher at 2,391.77.
   
Although the Federal Open Market Committee is widely expected to leave its fed funds rate unchanged, economists at IFR Markets say the Fed is likely to use the statement accompanying its decision to underline its concerns about inflationary pressures in the economy.
   
In other U.S. economic news, durable goods orders were unchanged between April and May but were lower than previously estimated in April, having fallen 1 percent instead of the 0.5 percent previously reported.

Sales of new homes in the US continued to fall in May dragging prices down and increasing the time it takes for builders to hand over the keys to new homeowners, the Commerce Department reported today.

New home sales were down 2.5% to a seasonally adjusted annual rate of 512,000 units. Economists polled by Thomson Reuters IFR Markets had expected a smaller slowdown to 515,000 annual units.

The median price of a new home fell 5.7% from a year earlier to $231,000. Builders managed to cut 16.9% off the actual number of unsold homes to 453,000, the largest monthly decline since July 1997. However the slower sales pace left the inventory of new homes at a 10.9 months supply, up from 10.7 in the previous month.

Sales estimates were revised down by 1,000 units for April. Meanwhile sales in the West fell by 11.6% to an annual rate of 114,000 units, the lowest level since September 1982. Sales in the Northeast fell by 7.9% to a 35,000 annual unit pace.

New home sales increased in the Midwest and South, by 5.1% and 0.4% respectively. Sales in the South, the country's largest region, reached an annual pace of 281,000 units.

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Forex - Pound up on solid CBI survey; U.S. dollar steady ahead of rate decision

LONDON - The pound gained after a survey showed an improvement in UK retail sales during June, while the U.S. dollar remained broadly steady as investors remained on the sidelines ahead of the interest rate decision by the Federal Reserve.

The Confederation of British Industry's monthly survey found 39 percent of respondents said retail sales in the first half of June were lower than a year ago, while 30 percent said they had risen.

The resulting net balance of -9 percent compared with -14 percent in May and was much better than analysts' expectations for a deterioration to -16 percent, allowing the pound a small boost. However, analysts noted that the survey still points to a weak outlook for retailers, and suggests that May's official data, showing very strong retail sales growth, will be reversed in June.

"Even after June's modest improvement, the weakness of the CBI's Distributive Trades Survey is still massively at odds with the strength of the official sales data. It therefore remains likely that the surge in the official measure in May is reversed in June," said Vicky Redwood at Capital Economics.

Elsewhere, the U.S. dollar remained steady against the euro, trading in a tight range in cautious trade ahead of the interest rate decision Wednesday evening by the U.S. Federal Reserve's Federal Open Market Committee.

Rates are fully expected to be left on hold and attention will focus on the accompanying statement. Speculation remains that the Fed will adopt a more hawkish stance that could signal a rate hike in the coming months, in a bid to tackle the threat from inflation. A string of very weak U.S. data on Tuesday, however, highlighted the scale of the task facing the U.S. economy.

"Attention today will swiftly move to the outcome of the Fed FOMC meeting and the delicate balancing act needed in terms of weighing up inflation risks against worsening growth," said Mitul Kotecha at Calyon.

Ahead of that meeting, however, market players will be keeping an eye out for further U.S. data, with durable goods orders and new home sales figures due for release, which could put the U.S. dollar under pressure again if they come in on the weak side.

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Euroshares open up as financials gain, offsetting Wall St, Asian losses

At 9:15 a.m., the DJ STOXX 50 was up 23.04 points, or 0.79 percent, at 2,949.8 and the DJ STOXX 600 was up 2.11 points, or 0.72 percent, at 294.66.

In Europe, there is little on the corporate calendar so focus will likely be on ongoing M&A stories and broker changes Bradford & Bingley Plc. (B&B) looks close to agreeing to open its books to Resolution after the investment vehicle revised its 400-million-pound proposal, The Times has reported.

Morgan Stanley upgraded B&B, which was up 4.85 percent, and fellow UK mortgage lender Alliance & Leicester, up 3.01 percent, to 'equal-weight' from 'underweight'.

Elsewhere among the financials, Scor, up 3.65 percent, was upgraded to 'buy' and Swiss Re, up 0.14 percent, was upgraded to 'neutral' at UBS. Shares in Fondiaria-sai, up 1.78 percent, were upgraded to 'neutral' at Goldman Sachs.

The U.S. broker cut its stance on Hannover Re to 'sell', while UBS issued a short-term sell recommendation on the German reinsurer. Hannover shares fell 2.28 percent. Deutsche Postbank shares added 3.97 percent amid growing hopes that a bid for the group is imminent, with Santander, Deutsche Bank and Lloyds TSB all seen as possible bidders.

Nokia, up 4.96 percent, was boosted by a bullish update from Jabil, which provides parts to the Finnish handset giant -- which said it now expects its earnings to match or beat analyst forecasts after a much stronger than expected growth in fourth quarter sales.

The U.S. group referred to growth in volumes from its largest customer and positive signals on the mobile sector for the upcoming quarter. Shares in oil groups were largely higher amid still strong oil prices, with New York forward dated crude just shy of $138 per barrel in Asian trade.

BG was up 1.86 percent and ENI was up 0.59 percent BP added 2.06 percent after Morgan Stanley upgraded shares in the UK exploration and production group to 'overweight' from 'equal-weight'.

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Asian shares mixed ahead of Fed decision; Hong Kong up on Shanghai lead

The Hong Kong market, shut in the morning with tropical storm Fengshen lashing the territory after leaving the Philippines with massive devastation, reopened in the afternoon. The Hang Seng index closed up or 0.80 percent at 22,635.16

The Shanghai Composite stretched gains and closed up 3.64 percent at 2,905.01. The Nikkei 225 Stock Average ended down 0.1 percent at 13,829.92, extending its losing streak for a fifth day. The broader Topix shed 0.2 percent to 1,346.08.

Toyota Motor shed 1.3 percent to 5,160 yen, major office equipment maker Canon lost 0.5 percent to 5,500 yen and consumer electronics giant Sony shed 1.6 percent to 4,920 yen. Mizuho Financial Group fell 3 percent to 523,000 yen, Sumitomo Mitsui Financial slipped 1.5 percent to 853,000 yen and Mitsubishi UFJ Financial lost 2.2 percent to 967 yen.

"The market appeared to be factoring in some possible bad news after tonight's Federal Open Market Committee meeting," said Investrust technical analyst Hiroyuki Fukunaga.

In Sydney, the S&P/ASX 200 closed down 1.0 percent at 5,237.8 and the All Ordinaries index was off 1.0 percent at 5,363.1. Investors locked in recent gains in the resources sector but sought out bargains among financial stocks. BHP Billiton fell 4.7 percent to A$43.72 while its takeover target, Rio Tinto, dropped 3.7 percent to A$136.50.

"Banks have been hammered for months now and mercilessly in the last couple of days that was most likely related to tax loss selling before the end of the financial year (on June 30)," said Michael Heffernan, an equities analyst at Austock Securities.

Among the banks, National Australia Bank was up 3.8 percent at A$27.40, Commonwealth Bank advanced 0.9 percent to A$38.94 and ANZ gained 3.7 percent to A$18.63. Westpac rose 1.7 percent to A$20.55 and its takeover target, St. George, was up 1.4 percent at A$27.72.

South Korea's Kospi closed 0.4 percent higher at 1,717.79, after a four-day decline. Singapore's Straits Times Index finished up 0.8 percent at 2,986.62, rebounding from early losses, while Malaysia's KLCI edged up 0.7 percent to 1,209.11. The Jakarta Composite fell 1.0 percent to 2,341.64.

The Philippine Composite ended higher for the first time in six sessions, gaining 1.5 percent to 2,510.80 after hitting a fresh 21-month low on Tuesday. Taiwan's weighted index closed up 1.51 percent at the day's high of 7,855.06

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Oil prices stable before U.S. inventory data

LONDON - Oil prices steadied on Wednesday as the market sat tight before a key report on the state of crude inventories in the United States, the world's biggest consumer. Traders were also awaiting the Federal Reserve's latest decision on U.S. interest rates, also due on Wednesday.

New York's main oil futures contract, light sweet crude for August delivery, dipped 13 cents to 136.87 dollars per barrel. Brent North Sea crude for August climbed by four cents to 136.50 dollars. "Crude futures were almost unchanged ... with investors awaiting important data," said Sucden analyst Andrey Kryuchenkov.

The U.S. Department of Energy was to publish its latest weekly U.S. fuel stockpiles report, with analysts forecasting a drop in crude oil inventories. "In addition to tight supplies, a weaker dollar could also be supportive to oil prices," said Kryuchenkov.

"Today (Wednesday), the U.S. central bank is expected to leave interest rates unchanged at two percent amid disappointing data recently, which could put some pressure on the dollar and support crude futures."

A weaker dollar sparks demand for oil as it becomes cheaper for foreign buyers.Oil prices have almost doubled over the past year, and struck record highs of almost 140 dollars a barrel last week.

Saudi Arabia, the world's largest exporter of crude oil, recently agreed to raise its daily output by more than 200,000 barrels to 9.7 million.Opec president Chakib Khelil and other oil producers are opposed to higher output, blaming rocketing prices on speculative buying by funds.

Consuming nations, led by the United States and Britain, want the Organisation of Petroleum Exporting Countries to pump more oil, worried that a failure to do so will send prices to new record highs, in turn fuelling inflation and dampening economic growth. The Opec cartel produces about 40 percent of the world's crude.

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