US & World Daily Markets Financial Briefing 26-06-2008

Wall Street traded in the red, with the Dow Jones Industrial Average down 143 points at 11,668.8 in early deals, while the Nasdaq Composite lost 46.60 at 2,354.66 and the S&P 500 index fell back 16.68 at 1,305.29.

Stocks lost ground after Goldman Sachs warned further write-downs are needed in the United States banking sector and as the short-lived rally on global markets ran out of steam. The broker also downgraded the brokerage sector, including recommending investors 'sell' on Citigroup.

And a fresh jump in oil prices also weighed on sentiment, with light, sweet crude up more than $3 per barrel on the New York Mercantile Exchange after an OPEC official said prices could hit $150-170 this summer.

U.S. Q1 GDP revised up to 1.0 pct growth on exports, consumer spending 

WASHINGTON - The U.S. economy grew a tad faster in the first quarter than was previously thought, providing further evidence the country may have avoided a recession, though a key measure of inflation continued to rise.

The Commerce Department said higher exports, more consumer spending and higher business investment boosted growth.

The economy grew at a 1.0 percent annualized pace in the first quarter, upwardly revised from the 0.9 percent in the second estimate released a month ago.

The upward revision was in line with expectations of economists polled by Thomson Reuters IFR Markets. Thursday's report "further underscores the fact that, despite the serious headwinds and economic strains caused by rising energy prices, the U.S. economy has not contracted," said Marc Chandler of Brown Brothers Harriman.

Annual revision to international transactions caused exports to show a 5.4 percent increase, compared with a 2.8 percent increase in the May estimate.

"Export growth is one of the few economic bright spots at the moment, but it is insufficient to offset domestically driven weakness," said Joshua Shapiro of MFR.

But imports fell just 0.7 percent in the first quarter compared with an earlier estimate of a 2.6 percent fall, according to the report.

Consumer spending, which makes up more than two thirds of the U.S. economy, was revised slightly higher as fresh data showed an increase in spending on medical care services. Consumer spending rose 1.1 percent in the first quarter, a tick higher than the 1.0 percent estimate last month.

Inflation, as measured by the Personal Consumption Expenditures price index, rose 3.6 percent in the first quarter, up slightly from the 3.5 percent rise in the prior estimate.

The Fed's preferred measure of inflation, the core PCE price index, which excludes food and energy prices, rose 2.3 percent in the quarter, up from the 2.1 percent rise estimated in May and above the central bank's comfort zone of 2.0 percent.

Chandler said this is consistent with the Fed's policy statement released on Wednesday, which said the "upside risks to inflation and inflation expectations have increased".

Over the past 12 months, the PCE price index and the core PCE price index have risen 3.4 percent and 2.0 percent respectively. Real final sales rose 0.9 percent in the first quarter, faster than the 0.7 percent gain in the prior estimate.

Corporate profits after taxes in the first quarter rose 2.5 percent, slower than the 3.8 percent estimated in May. The overall number reflects the impact of the credit crisis on financial companies. Profits at non-financial corporations rose 7.8 percent. Business investment rose 0.6 percent compared with a 0.2 percent fall in the earlier estimate.

The housing recession was only slightly less of a drag on the economy than had been thought previosuly, with residential fixed investment plunging 24.6 percent, compared with the prior estimate of a 25.5 percent drop.

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U.S. dollar continues to fall against euro, pound

LONDON  - The U.S. dollar continued to fall against the euro, reaching a 17-day low as market players scaled back their forecasts for Federal Reserve rate hikes, while the pound remained sharply higher against the U.S. unit after hawkish comments from Bank of England rate setters.

The Federal Reserve on Wednesday left interest rates on hold at 2.00 percent as expected, but the accompanying statement sounded a less cautious note on inflation than some had expected.

"On inflation, the language is clearly tougher but the focus is on keeping inflation expectations anchored rather than any perception that a fully fledged domestic driven inflation process is about to develop," said Steve Pearson, currency strategist at HBOS. "In short, unless there are signs that the current deceleration in wage growth will be suddenly reversed by a surprise economic rebound, the Fed won't be raising rates anytime soon," he said.

As a result, market players have been scaling back their forecasts for near-term interest rate hikes in the U.S., and the perceived divergence in policy between the Fed and the European Central Bank -- which is expected to raise euro zone rates next week -- took the euro to a 17-day high of $1.5748.

The U.S. dollar meanwhile gained only marginally from news of an upgrade to first quarter U.S. quarterly GDP growth to 1.0 percent and slightly better-than-expected existing home sales data.

Elsewhere, the pound was sharply higher against the U.S. dollar, reaching a 7-week high of $1.9894, though it remained steady against the euro after earlier testimony from Bank of England Monetary Policy Committee members kept open the possibility that interest rates could be set to rise in the near term.

Outgoing deputy BoE governor John Gieve, and the Bank's markets director Paul Tucker, along with external MPC members Kate Barker and Tim Besley all confirmed that they considered a rate rise at their June meeting. However they said they wanted more time to see how the medium-term risks to inflation panned out.

Governor Mervyn King also told the committee that his letter last week to Chancellor of the Exchequer Alistair Darling to explain why inflation had risen more than one percentage point above the Bank of England's 2.0 percent target was not intended to be dovish.

"The choice for most MPC members going forward would seem to be between either keeping rates unchanged or raising them. Should GDP growth not moderate enough or wage growth pick up,  the BoE would probably move quickly to tighten monetary policy," said Bank of America economist Matthew Sharratt.

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Euroshares lower midday as banking stocks tumble; Dow set for opening losses

LONDON - Leading European exchanges fell further midday, as capital raising measures weighed on Fortis, with a number of disappointing company updates on both sides of the Atlantic set to drag the Dow lower in opening deals.
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At 12:49 p.m., the DJ STOXX 50 was down 51.23, or 1.73 percent, at 2,905.26 and the SJ STOXX 600 was down 5.81 points, or 1.96 percent, at 290.27.
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Fortis shares slumped 17.23 percent after the group announced measures to improve its solvency, including plans to raise its equity by about 1.5 billion euros.
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JP Morgan said the measures will dilute EPS by around 15 percent, leading to 2009 EPS of around 1.6 euros. Talk circulated that the group may not have done enough to shore itself up against further deterioration in the global markets.
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Shares in Dexia -- which many suggest is next in line to raise capital -- fell 6.14 percent.
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Unicredit fell 4.38 percent as the rally in banking sector shares was short-lived after an uninspiring business plan presentation. ABN Amro said there was nothing much new in the update, and pointed out shares are presently trading at higher multiples than the peer group.
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Profit warnings from two smaller Scandinavian financial plays added to the wider nervousness, with Acta down 10.42 percent and Neonet down 8.11 percent.
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Carrefour tumbled 6.91 percent after the French supermarket group's plans to rebrand Champion supermarkets in France sparked Merrill Lynch and JP Morgan to cut their recommendations to 'neutral' from 'buy' and 'overweight' respectively.
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Analysts at both houses said the group's projected synergies were lower than hoped for, and also highlighted the increasingly difficult trading environment.
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Adidas shares fell 3.41 percent after a gloomy outlook statement from Nike overnight. "Worries over the key weaknesses at Adidas -- its U.S. sales and its Reebok brand -- were exacerbated by a mediocre Nike outlook and sluggish U.S. sales," said a Frankfurt-based trader.
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Nokia was down 2.38 percent after Blackberry manufacturer Research in Motion shares fell more than 7 percent after the group's downbeat update.� A trader at a leading Scandinavian brokerage, though, pointed out that there is little in the update to worry Nokia investors."It doesn't seem to be a problem of demand or volumes, but the company is spending more on marketing & product development amid mounting competition from the iPhone, Centro etc," he said.
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SAP fell back 0.33 percent, as analysts pored over U.S. peer Oracle's numbers overnight for indications on the outlook for the German software group. While many, including Citigroup, cheered signs of strong demand, others were unsettled by Oracle's cautious outlook.
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Shares in Daimler drove 3.41 percent lower amid vague talk of new financial woes at Chrysler.
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Inbev was 3.13 percent lower, amid fears the group is preparing to either raise its offer for Anheuser-Busch or go hostile in its bid for the U.S. brewing group after a report in the Wall Street Journal that its prey is set to reject Inbev's proposal.

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Asian stocks surrender gains as inflation, U.S. worries persist

MANILA - Asian stock markets surrendered early gains on Thursday, with the Nikkei average edging down as easing oil prices hurt commodity stocks while the South Korean benchmark ended flat on persistent concerns about inflation and the U.S. economy.
   
Stocks rose early in the day, buoyed by Wall Street's gains after the Federal Reserve kept the benchmark federal funds rate at 2 percent on Wednesday and pointed to a few positive signs in the U.S. economy, including "some firming in household spending."
   
The Fed statement said "although downside risks to growth remain, they appear to have diminished somewhat," dropping hints it may not raise rates any time soon although it said "upside risks to inflation and inflation expectations have increased."
   
"Investors are expected to take every step with caution after experiencing conflicting U.S. releases and volatile crude oil prices in the past few weeks," said Goh Mou Lih, head of research at Westcomb Securities in Singapore.
   
Tokyo's Nikkei index closed 0.05 percent lower at 13,822.32, down for the sixth consecutive trading day. The broader Topix shed 1.29 points or 0.1 percent to 1,344.79.
   
Commodity stocks fell as oil prices levelled off in Asian trade on Thursday, after dropping almost $2.50 a barrel in New York following news of an increase in U.S. crude stockpiles.
      
Nippon Oil lost 3.1 percent to 685 yen, major non-ferrous metal smelter Sumitomo Metal Mining shed 2.3 percent to 1,590 yen, major trading house Mitsubishi Corp. retreated 2.6 percent to 3,420 yen.
   
South Korea's Kospi closed 0.01 percent lower at 1,717.66. Hong Kong's Hang Seng Index reversed early gains and ended down 0.8 percent at 22,455.67. The Shanghai Composite was down 0.1 percent at 2,901.85 and Taiwan's Taiex lost 0.6 percent at 7,811.80.
   
Singapore's Straits Times Index closed down 0.2 percent at 2,980.95 and Malaysia's KLCI fell 0.4 percent to 1,203.89. The Philippine Composite Index ended up 0.4 percent at 2,521.61, off a high of 2,543.6, while the Jakarta Composite was down 0.04 percent at  2,350.89.
   
In Sydney, the S&P/ASX 200 closed 1.3 percent higher at 5,307.0 and the All Ordinaries gained 1.1 percent to 5,421.5.
   
Oversold banking and financial services stocks led gains in the Australian market. Positive comments from senior executives of major banks including Commonwealth Bank of Australia and St. George Bank also boosted sentiment in the sector.
   
Commonwealth Bank Chief Financial Officer David Craig told a UBS financial services conference on Thursday that his bank was well placed in the current environment, having prudent funding and liquidity management with sound risk management processes in place.
   
St. George Chief Executive Paul Fegan meanwhile said his bank was on target to meet its earnings per share growth target of 8-10 percent for the year to Sept. 30 and that its credit quality remained strong.
   
Commonwealth Bank ended up 5.0 percent at A$40.90, St George rose 4.3 percent to A$28.90 while its suitor Westpac added 4.1 percent to A$21.39. ANZ rose 2.0 percent to A$19.00 and National Australia Bank added 2.4 percent to A$28.06.

Indian shares extended Wednesday's gains ahead of the expiry of the futures and options contracts, as investors continued to cherry-pick stocks that offered attractive valuations after the recent fall.
   
India's benchmark stock index, the Sensex, rose 201.75 points or 1.42 percent to close at 14,421.82 and the wider S&P CNX Nifty of the National Stock Exchange advanced 63.20 points or 1.49 percent to 4,315.85.
   
Of the 30 stocks that constitute the Sensex 17 gained with Ambuja Cements Ltd. leading the charge, rising 6 percent at 87.50 rupees.

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Metals - Copper jumps as Fed leaves rates unchanged

LONDON - Copper rose as the dollar remained weak after the U.S. Federal Reserve left interest rates unchanged.

Tight supply and some signs of strong demand from fast growing economies, despite a global credit crunch, also underpinned copper.

At 9:50 a.m., London Metal Exchange (LME) copper for three-month delivery was at $8,420 per tonne, up from $8,315 at the close on Tuesday.

"The main change following the FOMC meeting, therefore, seems to be the weaker dollar ... and the metals, both base and precious, are up as a result," said BaseMetals.Com analyst William Adams. "So, for the moment the dollar seems to be the underlying ruling factor in the metals and as such the direction of the metals will no doubt be in the hands of today's economic data," added Adams.

Later on Thursday, the focus will be on U.S. existing home sales numbers and whether the beleaguered housing market is finally starting to recover. Analysts expect the annual rate of sales to have risen to 5.0 million in May from 4.89 million in April.

Also of note, will be the final reading of first-quarter U.S. GDP growth, which is expected to be revised up to 1.0 percent from the initial estimate of 0.9 percent. "U.S. data releases may come as a little bit of relief to U.S. markets today following the run of soft data over recent days," said Mitul Kotecha, head of currency research at Calyon.

In other metals traded on the LME, three-month tin was up at $22,900 per tonne against $22,705. Lead for delivery in three months jumped to $1,800 per tonne from $1,782, while aluminium was higher at $3,075 from $3,058. Nickel rose to $22,195 per tonne, basis three months, from $21,700, while zinc was higher at $1,900 from $1,872.

Oil price to hit $150-$170 in coming months - Opec

The president of Opec, Algerian Energy Minister Chakib Khelil, predicted Thursday that oil prices would rise to $150 to $170 dollars a barrel during the northern hemisphere summer.

"I predict probably prices of 150 to 170 dollars this summer. It (the market) will probably fall a bit towards the end of the year," he said in an interview with the France 24 television channel.

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