US & World Daily Markets Financial Briefing 26-03-2008

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Stocks fall on weak durable goods data

NEW YORK - Stocks pulled back Wednesday after the government's February durable goods report injected more pessimism about the economy into the market. The Dow Jones industrial average fell more than 130 points.

The Commerce Department said durable goods orders fell 1.7 percent last month, the second straight monthly decline in the economic indicator. The market had expected orders to go up.

The disappointing report comes a day after the broader stock market extended its gains following two sessions of sharp advances. Considering that the blue-chip Dow has risen more than 425 points in the past three sessions, a pullback does not come as a surprise, particularly after the weak durable goods numbers.

The Commerce Department also reported that sales of new homes fell in February for a fourth straight month as the housing slump continues. The 1.8 percent decline, however, was a bit better than economists surveyed by Thomson Financial/IFR had anticipated.

What remains unclear, however, is how much Wednesday's economic data will end up eroding the market's recent rally.

"Part of the reason we're down is the negative data on the heels of fresh optimism, and a combination of that typically leads to selling," said Todd Salamone, director of trading at Schaeffer's Investment Research. "There is also some window dressing going on with the quarter winding down, and we also have earnings reports coming in just a few weeks."

In late morning trading, the Dow fell 134.00, or 1.07 percent, to 12,398.60. Broader stock indicators also retreated. The Standard & Poor's 500 index fell 13.70, or 1.01 percent, to 1,339.29, while the Nasdaq composite index fell 28.20, or 1.20 percent, to 2,312.85.

Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.46 percent from 3.51 percent late Tuesday.

Oil prices soared after the Energy Department said the nation's inventory of crude oil, gasoline and distillate fuels was lower than expected last week. Light, sweet crude rose $3.26 to $104.48 a barrel on the New York Mercantile Exchange.

Corporate news appeared to weigh on some investors. Private equity firms leading a $19.5 billion buyout of Clear Channel Communications Inc. were having difficulty reaching terms with the banks committed to financing the deal and the plan was close to collapse, according to a report by The Wall Street Journal.

Meanwhile, Motorola Inc. said it plans to split its troubled handset business from other operations, creating two separate, publicly traded companies. Shares of the handset maker rose 9 cents to $9.85.

Electronic parts manufacturer Jabil Circuit Inc. posted a fiscal second-quarter loss and warned its third-quarter results will fall short of Wall Street's expectations. The disappointing results caused shares to plunge $2, or 17.6 percent, to $9.38.

The Russell 2000 index of smaller companies fell 7.65, or 1.08 percent, to 697.62. Declining issues led advancers by 3 to 1 on the New York Stock Exchange, where volume came to 343.2 million.

In afternoon trading, Britain's FTSE 100 fell 0.49 percent, Germany's DAX index fell 0.30 percent, and France's CAC-40 was off 0.64 percent.

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Pound falls below 2 usd as MPC members say sterling set to slide

LONDON - The pound fell sharply as the Bank of England's (BoE) chief economist, Charlie Bean, said the size of the UK's current account deficit means sterling is likely to fall.

Speaking before the Treasury Select Committee, Bean said given the size of the UK current account gap, "sterling is likely to move to the downside".

He noted that a further depreciation in the pound was assumed in the central projections in the February Inflation Report.

BoE governor Mervyn King said that as economic growth rebalances away from consumer spending towards exports, it is normal that the pound come under more pressure.

However, he also said that the Monetary Policy Committee is not "indifferent" to the value of the pound when considering its policy options because of its impact on inflation.

The pound's falls were exacerbated when King, asked if tighter lending conditions made interest rate cuts more likely, replied "yes".

"Bean's comments on the pound look to have set sterling sliding and King's subsequent comments had added to this," said Mitul Kotecha, currency strategist at Calyon.

At 12.30 am GMT the pound was trading at 1.9980 usd having been at 2.0108 at 10.30 am. The euro had climbed to 0.7878 stg from 0.7782.

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Euroshares down midday as DJIA set to go lower again; Deutsche caution weighs

LONDON - Europe's largest bourses were lower midday as the Dow is expected to falter again in opening deals, with investors sticking to the sidelines ahead of a flurry of data and as a cautious outlook statement from Deutsche Bank weighs on banking stocks.

At 11.47, the DJ STOXX 50 was down 1.48 points, or 0.07 pct, at 3,034.13 and the DJ STOXX 600 was up 0.21 points, or 0.07 pct, at 306.84.

"European markets briefly pared losses to trade broadly unchanged after a report showing an unexpected increase in German business confidence in March before edging back into the red," said one Zurich-based trader.

In Europe, financials put in a mixed performance after Deutsche Bank said it may see additional writedowns in 2008 should markets fail to improve. The bank also said its short-term outlook sees a "very challenging" climate. The news acted to fuel investors' fears about the state of the market, said a Frankfurt-based trader. Shares fell 1.74 pct.

The news dragged on peers UBS and CS Group in early deals but both soon rallied from lows, with the former down 0.6 pct and the latter up 0.19 pct.

In M&A news, Xstrata fell 7.78 pct after news last night takeover talks with Brazil's Vale have ended. But shares came off lows as JP Morgan, Merrill Lynch and others suggested the shares have a strong outlook and the valuation looks compelling even without a bid.

Philips led Dutch blue chips lower after the group said it is to acquire Northern Ireland-based Tomcat Systems. Shares fell 2.01 pct.

Hochtief fell 2.28 pct in early morning deals after issuing a weaker outlook for 2008 than had been hoped, alongside a mixed bag of full-year figures. "Above all, the pretax guidance for 2008 is disappointing and should drag the stock down," said a Frankfurt-based trader in response to the company's numbers.

But shares in DSM stormed 9.94 pct higher after the Dutch group raised its full-year operating profit guidance. "It is very courageous to raise full-year guidance and is a very strong sign of confidence," said Petercam analyst Jan van den Bossche.

Danisco shares climbed 5.01 pct. The Danish food production group lifted its full-year forecasts as it reported a forecast-beating set of full-year numbers.

And shares in Leoni were 6.25 pct higher in midday trade after the MDAX-listed automotive wire, cable and harness specialist reiterated its 2008 outlook -- putting pay to investor fears the group may be affected by an expected slump in the auto market.

Baloise Holding shares added 1.61 pct after the insurance group reported a forecast-beating full-year net profit of 813.8 mln sfr, up from 707.1 mln the year before, reflecting accelerated growth with business volumes up 6 pct year on year.

Sainsbury added 3.42 pct after Britain's third-biggest supermarket group reported better-than-expected fourth-quarter sales and announced a joint venture with British Land PLC. Numis Securities described trading as "robust", with like-for-like ex-fuel sales growth marginally ahead of expectations.

Earlier, German Ifo data showed a surprise rise to 104.8 from 104.1 in February, well above analysts' forecasts of a decline to 103.4.

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Asian stocks turn mixed on lackluster Wall Street; yen weighs in Tokyo

SINGAPORE - Stock markets across Asia pared early gains to trade mixed Wednesday after a lackluster performance on Wall Street overnight, with Japan coming back from its worst levels as the dollar recovered the 100 yen mark, easing concerns about export earnings.

The Kospi finished up 0.3 percent at 1,679.67 and the Kosdaq was slightly higher at 628.38. The Kospi had gained about 6 percent in the last six sessions.

"The market is apparently showing signs of fatigue right now after an impressive technical rebound. Investors are now asking what's next," said Kim Young-Il, a fund-manager at Hanwha Investment Trust & Management.

The Australian benchmarks fared a little better with the S&P/ASX 200 finishing up 1.2 percent at 5,381.4 and the All Ordinaries up 1.2 percent at 5,421.3.

"The rally we saw yesterday is being sustained which is good to see as we haven't seen too many rallies sustained for some time," said Juliette Saly, an equities analyst at CommSec.

A recovery in commodity prices overnight and continued takeover activity boosted mining stocks. Zinc miner Perilya Ltd is offering 294 Australian million dollars in scrip for fellow zinc miner CBH Resources Ltd in an agreed deal.

The offer represents a 27 percent premium to the volume weighted average price for CBH in the month leading up to the offer. If the deal goes ahead it will be the first time Australia's historic Broken Hill mineral field will be under a single ownership. CBH closed up 14.5 percent at 39.5 cents while Perilya was up 14.5 percent at 1.145 dollars.

Elsewhere, the Hang Seng closed 0.7 percent higher at 22,617.01.

The Shanghai Composite was down 0.6 percent at 3,606.97, after earlier gaining on better-than-expected bank earnings.

Bank of China on Tuesday announced a forecast-beating 31.3 pct increase in 2007 net profit and a reduction in its exposure to the troubled subprime mortgage market.

Industrial and Commercial Bank of China, the mainland's largest bank, said 2007 net profit grew 65 pct on rising interest income and increased fees. Bank of China edged up 0.01 yuan at 5.02 yuan and ICBC was up 0.01 percent at 5.71 yuan.

The Philippines Composite ended up 0.9 percent at 2,918.37 and the Malyasian KLSE Composite closed up 1.3 percent to 1,245.42.

The Singapore Straits Times index was down 0.2 percent at 2,995.22. Taiwan's weighted index also closed down 0.31 percent at 8,768.02 while Jakarta's composite index ended up 0.9 percent at 2,440.64. 

The Bombay Stock Exchange's (BSE) benchmark 30-share Sensex fell 130.66 points or 0.81 pct to 16,086.83 while the National Stock Exchange's (NSE) broader, 50-share S&P CNX Nifty shed 1 pct to end at 4,828.85 points.

Among the index shares, 19 losers outnumbered 11 gainers with Anglo-Dutch consumer goods major Unilever PLC's Indian unit Hindustan Unilever Ltd (HUL) retreating the most, down 4.31 pct at 234.40 rupees. ICICI Bank Ltd, country's biggest private bank, also shed 4.17 pct to 843.25 rupees as investors chose to book profits on the lender.

Reliance Industries Ltd (RIL), the most weighted Sensex component, also slid 0.68 pct to 2,298.70 rupees.

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Copper up in line with rising commodities

LONDON - Copper held onto gains amid positive sentiment in commodities after a sharp sell off last week and as stocks fell. Fund money returned to the complex across the board on bargain hunting and as the dollar remained weak.

"Markets are on course to avoid the volatility seen throughout March, providing a decent backdrop for increasing exposure to risk assets," said UBS analyst Robin Bhar. "Commodities snapped their recent losing streak, suggesting an abrupt end to de-leveraging and long-liquidation in risk," he added.

At 3.07 pm, LME copper for three-month delivery was up at 8,150 usd per tonne against 8,080 usd at the close yesterday.

The LME reported today that copper stocks fell more than 2,000 tonnes and are now at 118,050 tonnes -- their lowest level since late July 2007.

A weak dollar, which was again lower today against the euro, was also helping all commodities priced in the greenback as they became cheaper for those trading in other currencies.

Sentiment for base metals has become more positive since the start of the year when most analysts were advising players to sell industrial commodities. They had said that economic weakness, led by the US, would dry up liquidity and hammer demand.

But, in recent weeks the market viewed metals as useful assets amid such crises because commodities are supported by a supply/demand balance and will hold their value, unlike equity markets which have been free falling.

Last week, however, base metals fell amid a commodity-wide sell off as traders locked profits.

"There are uncertainties associated with the outlook for base metals prices. And last week's price falls may cause investors to approach base metals a little more cautiously in the coming week," said analysts at the Commonwealth Bank of Australia.

In the longer term, however, they added that "we believe that there may well be a bounce in several of the base metals prices over the next quarter, although we expect most base metals prices to finish 2008 below current levels."

Strong demand from China should make up for the loss in US demand, analysts reckon.

In other traded metals, tin was up to 20,250 usd per tonne against 20,000 usd, nickel was flat at 29,550 usd per tonne, aluminium was up to 2,930 usd per tonne against 2,906 usd, while zinc was at 2,325 usd per tonne from 2,331 usd. Lead traded at 2,780 usd per tonne against 2,756 usd.

Among precious metals, at 1.54 pm spot gold was trading at 945.53 usd per ounce, against 934.70 usd in late New York trade yesterday. Platinum was trading up strongly at 1,978 usd per ounce against 1,879 usd, silver was up at 17.97 usd per ounce against 17.75 usd and palladium was down at 449 usd against 451 usd.

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