US & World Daily Markets Financial Briefing 27-03-2008

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Stocks fall after GDP report

NEW YORK - Stocks lost ground Thursday after a reading on the economy confirmed a slowdown in the final quarter last year and a weak quarterly showing from Oracle Corp. weighed on technology stocks.

The Commerce Department's gross domestic product data showed the economy grew at a 0.6 percent annual pace in the final quarter last year -- unchanged from an estimate a month ago. And while consumers increased their buying at a 2.3 percent pace, which was ahead of the 1.9 percent growth rate that had been estimated, investors seemed unwilling to make bets that the economy will soon recover.

Oracle, the maker of business software, posted fiscal third-quarter sales that fell short of Wall Street's expectations and issued a cautious forecast.

The reports arrived as Wall Street is still trying to determine how well the economy is holding up under strains including tightness in the credit markets, a weak housing sector and nervous consumers who have cut back spending. Investors will likely be examining comments from Federal Reserve officials for insights into how the economy, and specifically the financial sector, are faring. Several Fed officials are slated to speak Thursday.

George Shipp, chief investment officer at Scott & Stringfellow, said investors are generally uneasy about whether they have an accurate read on the scale of the troubles in the financial sector. There are fears that a parade of write-downs on bad investments will continue.

"It's hard to imagine there is going to be any good news. The question is whether it's been discounted," he said, referring to another round of potentially weak results from big banks in the coming months. "The market is groping for a bottom. It's a difficult time."

In late morning trading, the Dow Jones industrial average fell 56.17, or 0.45 percent, to 12,366.89. Broader stock indicators also fell. The Standard & Poor's 500 index slid 7.34, or 0.55 percent, to 1,333.79, and the technology-heavy Nasdaq composite index fell 30.25, or 1.30 percent, to 2,294.11, hurt by Oracle's decline.

Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange, where volume came to 407.1 million shares. Oracle fell $1.55, or 7.4 percent, to $19.39. Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.48 percent from 3.46 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude rose 38 cents to $106.28 on the New York Mercantile Exchange. Prices jumped early Thursday after the bombing of a key oil pipeline in Iraq.

Upbeat economic news gave investors some room for optimism but wasn't enough to stave off a decline in stocks. The Labor Department said the number of workers seeking unemployment benefits fell last week. Applications declined by a seasonally adjusted 9,000 to 366,000. Though the weekly figures can be volatile, the reading was better than the 371,000 many economists predicted.

In corporate news, American Express Co. agreed to acquire the corporate payment services division of GE Money, a division of General Electric Co., for $1.1 billion cash. American Express fell 36 cents to $45, while GE fell 33 cents to $36.80.

ConAgra Foods Inc. advanced $1.35, or 6.2 percent, to $23.24 after striking a deal to sell its commodity trading and merchandising operations to an investment group for about $2.1 billion.

Williams-Sonoma Inc. said profits rose 3 percent in its fiscal fourth quarter, which was a week longer than a year earlier. The home furnishings retailer warned, however, that it expects fiscal 2008 earnings will come in below Wall Street's estimates. The stock fell $1.28, or 5.1 percent, to $23.70.

Overseas, Japan's Nikkei stock average closed down 0.80 percent. In afternoon trading, Britain's FTSE 100 rose 0.36 percent, Germany's DAX index advanced 1.03 percent, and France's CAC-40 rose 0.41 percent.

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Forex - Dollar recoups earlier losses on relief US GDP growth left unrevised

LONDON - The dollar recouped earlier losses on relief that today's US GDP data did not yield any nasty surprises. The news from the Commerce Department US GDP growth was left at an unrevised annualised rate of 0.6 pct, with consumer spending higher, helped US stock future rally, helping the dollar to climb towards day highs against both the euro and the yen.

"Euro/dollar has been sold in the wake of the US Q4 GDP data with the unrevised data boosting the US unit across the board," said Matthew Foster-Smith, analyst at Thomson IFR Markets. "The headlines matched expectations with spot soon depressed from the near-1.58 usd levels traded into the release," he added.

The dollar has suffered in the wake of a raft of disappointing economic news and today's latest GDP estimate is unlikely to alter perceptions that the world's largest economy is on the verge of recession. The Commerce Department is expected to confirm US economic growth in the fourth quarter of 2007 was an annualised rate of 0.6 pct and not far off recession territory.

Analysts said the US currency is likely to remain weighed down against the euro by the prospect of widening interest rate differentials between the US and the euro zone. Similar reasons are helping the pound remain above 2.00 usd. "Over the short-term the dollar is likely to remain under pressure, but a reassessment of relative growth and interest rate differentials should ensure that it recovers from Q2 2008," said Mitul Kotecha, head of global FX strategy at Calyon.

As a result, the prospect of another new all-time high in the euro's value against the dollar remains. Last week, before going on the retreat ahead of the long Easter weekend, the euro struck its all-time high of 1.5903 usd. Though the economic fundamentals may be working against the dollar, traders remain on the lookout for any intervention to cap the dollar's decline.

Meanwhile, the pound has recovered some of yesterday's losses against the euro after some fairly solid economic data out of the UK. Business investment figures from the office of National Statistics raised the prospect of an upward revision to tomorrow's fourth-quarter GDP data from the previous 0.6 pct estimate, while the Confederation of British Industry indicated retail spending remains fairly resilient.

Analysts said the combination is likely to diminish market expectations that the Bank of England (BoE) will cut its benchmark Bank Rate another quarter point to 5.00 pct in April.

The pound was in sharp retreat yesterday after, notably, the BoE's chief economist, Charlie Bean, noted the downside risks to the currency and added that a depreciation in the pound was assumed in the central projections in the February Inflation Report. Meanwhile, the BoE's governor Mervyn King said that as economic growth rebalances away from consumer spending towards exports, it is normal that the pound comes under more pressure.

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Euroshares up midday as Dow seen gaining; financials rally afetr ECB comments

At 12.11 am, the DJ STOXX 50 was up 33.8 points, or 1.12 pct, at 3043.47 and the DJ STOXX 600 was up 3.33 points, or 1.09 pct, at 307.96. European banking stocks rallied mid-morning after European markets rose after a flurry of positive news and as the ECB said it was ready to inject more cash into money markets to easy liquidity constraints if required.

Hypo Real Estate staged a dramatic recovery after upbeat comments from its management team on its investor conference call. Having fallen more than 3 pct in opening deals, shares pushed their way to the top of the Dax leader board -- up 13.58 pct "We think today's information clearly reduces the downside risks," UBS told clients after the call.

And a Frankfurt-based trader said after an initial negative reaction, investors had time to digest the bank's statements this morning and came to the conclusion that news was already priced into the stock.

And Swiss Life stormed 7.89 pct higher after the group had a much better-than-forecast set of full year numbers. Hot on the heels of a strong performance from Baloise yesterday, the news helped to lift other insurance plays.

Aegon added 2.06 pct. Allianz added 2.23 pct on ongoing hopes it has found a buyer for its Dresdner unit.

Austrian financials also gained with Erste Bank up 7.18 pct after it said it has sold its insurance operations to Vienna Insurance Group AG (VIG) for 1.445 bln eur and signed a 15 year distribution agreement with the Austrian insurer.

And Raiffeisen climbed 4.46 pct after it said its fourth-quarter net profit rose almost 38 pct on the year to 215.6 mln eur, beating the consensus estimate, thanks to strong growth in retail profits.

The retail sector was another key focus. Hennes & Mauritz stormed ahead by 5.18 pct as the Swedish fashion retailer Hennes & Mauritz AB posted a much stronger than forecast first-quarter profit.

The headline result was above average market expectations of 3.903 bln skr, as recorded by SME Direkt. But Kingfisher fell back 4.22 pct as the group halved its dividend payout and issued a cautious outlook statement.

"The cut is actually worse than it looks," said Nick Bubb retail analyst at Palii International. He said he expects profits to continue to fall in 2008 adding there is plenty of room for disappointment. He repeated his 'sell' recommendation.

In other earnings news, Compass climbed 3.46 pct after its trading update which Merrill Lynch said was highly encouraging. The news lifted shares in French peer Sodexho 3.73 pct.

SAP continued to lead the STOXX 50 fallers -- down 5.24 pct -- as the news from Oracle weighed on sentiment and after media reports said that US-based Waste Management Inc has sued the German group over a software failure. "Alongside Oracle's after market stock reaction, this news doesn't bode well for SAP," said a Frankfurt-based trader.

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Asian stocks fall with Wall Street as data revives slowdown fears

The Nikkei ended down 0.8 percent at 12,604.58 and the Topix fell 0.9 percent to 1,226.44. The strong yen continued to put pressure on big exporters. The dollar was last quoted at 98.95 yen, down 0.4 percent from late Wednesday. Consumer electronics giant Sony lost 3.8 percent to 4,070 yen while Toyota Motor declined 2.9 percent to 5,110 yen.

In Australia, strength among resource stocks as commodity prices continued to climb was not enough to offset losses in other sectors. The S&P/ASX 200 finished down 0.2 percent at 5,371.6 and the All Ordinaries was down 0.1 percent at 5,418.5.

The Kospi ended down 0.2 percent to 1,676.24 and the Singapore Straits Times was up 1 percent at 3,025.20. The Indian Sensex provisionally closed 0.23 percent lower at 16,050.38. The Kuala Lumpur Composite ended up 0.7 percent to 1,254.03. The Philippines Composite managed gains, closing up 0.3 percent at 2,925.91.

Sector leader Philex Mining Corp rose 4.9 percent to 6.40 pesos after gold prices rallied for a second session as the dollar weakened. The Hang Seng pared early losses and closed up 0.2 percent at 22,664.22.

"With the futures expiry slated for tomorrow investors are buying up the heavyweight stocks announcing their earnings later today to minimize their losses, and on hopes that they will surprise the market with their results," said YK Chan, a strategist with Phillip Capital Management.

Cheung Kong (Holdings) Ltd rose 1.6 percent to 110.10 dollars. CNOOC added 1.5 percent to 11.12 dollars and Li & Fung was up 4.4 percent to 31.85 dollars. The Jakarta composite index closed up 0.4 percent at 2,451.35 while Taiwan's weighted index closed down 1.85 percent at 8,605.95.

Among individual stocks, Mitsubishi Corp closed down 1 percent to 2,875 yen and Mitsubishi UFJ Financial lost 1.2 percent to 877 yen after the Nikkei newspaper reported that the companies are planning to set up a 100 billion yen corporate buyout fund next month to mainly target domestic companies.

Elsewhere, Australian index leader BHP Billiton was up 1.3 percent at 35.76 dollars, while rival Rio Tinto added 2.2 percent to 120.90 dollars.

Newcrest Mining rose 3.2 percent to 33.69 dollars. Shares of Malayan Banking Bhd (Maybank) tumbled 7.3 percent to 8.30 ringit as investors worried about the price the bank is paying for a controlling stake in an Indonesian bank.

Malaysia's largest bank said Wednesday it's buying a 56 percent stake in PT Bank Internasional Indonesia (BII) for 4.8 billion ringit. The deal values BII, Indonesia's sixth-largest bank by assets, at a price-to-book ratio of 4.6 times.

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Metals - Copper continues higher after better-than-expected US data

LONDON - Copper continued higher, taking the other metals up with it, as better-than-expected US data helped ease fears over what will happen to demand in a possible US recession. The Commerce Department said earlier the US economy grew at a 0.6 pct annualised pace in the fourth quarter, the same rate as reported in the previous estimate.

The reading was in line with analysts estimates, but in a market that has become use to hearing bad news on the US economy, the data was taken positively by most. Also, it was accompanied by good news on the jobs front.

According to the Labor Department, the number of first time jobless claims filed in the week ending March 22 dropped by 9,000 to 366,000. Economists were expecting new jobless claims to total up to 370,000. "This better jobs number may well give the markets a boost, especially after the poor data and performance of late," said BaseMetals.com analyst William Adams.

On the GDP data, he said: "The fact that GDP was as expected should be a relief, but as these refer to 3 to 6 months ago... more recent gloomy data may dominate thoughts. But at face value this should boost base metals."

At 2.02 pm, LME copper for three-month delivery was up more than 3 pct at 8,430 usd a tonne against 8,185 usd at the close yesterday. Data aside, the metal was boosted by more falls in LME inventories.

The LME said in a daily report today LME stocks held in its warehouses fell again, this time by 825 tonnes to total 117,225 tonnes. At the start of the year, LME copper stocks stood around 200,000 tonnes. Copper has recovered strongly from falls posted last week, when funds liquidated long positions or bets on price rises in commodities amid fears that the credit crunch will crimp metals demand long term.

Looking ahead, however, many analysts remain cautious because the full impact of the global credit crunch is still unknown, and could well end up crimping demand, even for real assets like metals. "It seems commodities are being boosted by the weaker dollar, while ignoring the rapidly deteriorating US macro backdrop and the weak demand implications this will have on metals.

"We therefore are inclined to see this recent move higher in metals as a rally in a short-term downtrend that has yet to fully play out," said MF Global analyst Ed Meir.

Tin rose to 20,500 usd a tonne against 20,350 usd at the close yesterday, underpinned by low stocks and worries over supplies from key producers China and Indonesia. These concerns are working to keep the metal in sight of a recent record high of 20,950 usd.

Elsewhere, nickel was up at 30,525 usd a tonne against 29,825 usd, zinc rose to 2,350 usd against 2,330 usd, lead edged up to 2,825 usd against 2,800 usd while aluminium climbed to 3,000 usd against 2,945 usd.

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