US & World Daily Markets Financial Briefing 28-02-2008

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Stocks fall on weak economic data

NEW YORK - Wall Street fell Thursday after a pair of reports showed that the economy nearly stalled in late 2007 and that unemployment claims rose last week.

Investors were disappointed to see the Commerce Department report saying fourth-quarter gross domestic product rose by a smaller-than-expected annual rate of 0.6 percent. And separately, the Labor Department reported that first-time unemployment claims rose last week by 19,000 to 373,000, the highest level since late January.

The data bolstered investors' concern that the economy is weakening sharply -- and those worries escalated further Thursday when the dollar dipped to a new low against the 15-nation euro.

Meanwhile, corporate news was similarly downbeat. Sprint Nextel Corp. posted a $29.5 billion loss in the fourth quarter after writing down the remaining value of its Nextel Communications buy and losing customers. It also slashed its dividend, and shares tumbled 70 cents, or 7.8 percent, to $8.25.

In midmorning trading, the Dow Jones industrial average dropped 94.51, or 0.74 percent, to 12,599.77. Broader stock indicators also lost ground. The Standard & Poor's 500 index declined 8.59, or 0.62 percent, to 1,371.43, and the Nasdaq composite index lost 11.75, or 0.50 percent, to 2,342.03.

Government bonds rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.75 percent from 3.85 percent late Wednesday.

The stock market this week has been hit by a series of complex developments, including regulatory changes that should enable mortgage companies Fannie Mae and Freddie Mac to put badly needed liquidity into the housing sector. There have also been indications that funding may be found for ailing bond insurers.

Fannie Mae rose $1.37, or 5 percent, to $28.64, and Freddie Mac rose $1.44, or 5.7 percent, to $26.53. Bond insurer MBIA Inc. fell 65 cents, or 4.4 percent, to $14.20, while another large bond insurer, Ambac Financial, fell 22 cents to $11.85.

Housing market news was dim. Thornburg Mortgage Inc. plunged after the mortgage lender said it has received margin calls -- calls for immediate repayment of debt -- on a portfolio of securities backed by alt-A mortgages. Alt-A mortgages are those given to customers with little credit history or minor credit problems.

Thornburg fell $2.29, or 20 percent, to $9.25. Crude oil jumped $1.25 to $100.89 a barrel on the New York Mercantile Exchange. Gold prices also advanced.

The Russell 2000 index of smaller companies was down 8.58, or 1.20 percent, at 707.86. Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 236.0 million shares.

Overseas, Japan's Nikkei stock average fell 0.75 percent. In afternoon trading, Britain's FTSE 100 was down 1.38 percent, Germany's DAX index was down 1.51 percent, and France's CAC-40 was down 1.98 percent.

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Forex - Dollar steady ahead of Q4 GDP figures

The dollar has been in the doldrums this week following a series of weak US data and a downbeat assessment of the economy's prospects from Federal Reserve chairman Ben Bernanke yesterday. This all combined to reinforce expectations that US interest rates will be cut by 50 basis points at the Fed's next monetary policy meeting in March, sending the euro to an all-time high yesterday afternoon of 1.5143 usd.

The US economic outlook has been bleak for some time, but a reasonable week for equity markets coupled with firmer-than-expected euro zone data meant the greenback hasn't benefited from the safe-haven flows seen in recent weeks when equity market turmoil and fears of a global economic slowdown prompted investors to switch out of risky assets and into dollars.

This afternoon sees the release of fourth quarter US GDP figures which analysts expected to show a 0.7 pct quarter-on-quarter rise. Ahead of this comes the weekly jobless claims numbers, with the number of people filing for unemployment insurance for the first time expected last week to edge up to 350,000 from 349,000 a week earlier. 

Meanwhile Bernanke returns for his second day of testimony to congress this afternoon, which analysts at Barclays Capital said should see him repeat the "dovish message" of yesterday's speech. Bernanke told congress that the risks to growth remain on the downside, but assured markets that he would do as required to safeguard growth. He also noted that the one bright spot for the US economy was the weak dollar helping to support its exports.

Elsewhere the euro remained well supported following firm German unemployment figures. German unemployment fell by 75,000 in February, pushing the unemployment rate down to 8.0 pct from 8.1 pct - the lowest since November 1992. The news is likely to further the European Central Bank's concerns that a tighter labour market could lead to a pick up in wage inflation, further the dampening the case for a fall in borrowing costs.

Added to this have been hawkish comments from European Central Bank rate setter Axel Webber who said that market expectations on interest rates clearly "underestimate" inflation risks. Meanwhile the pound was up slightly but remained close to the all-time low it fell to against the euro yesterday following rumours that a UK clearing bank was in trouble.

Today the more general fear is that while the euro zone is, so far, proving fairly resilient to the US slowdown, the UK is set to feel more of an impact, meaning sterling is having trouble clawing back much of yesterday's losses.

Finally, the Australian dollar was lower as traders rushed to take profits following the currency's ascendancy to a 24-year high against the dollar of 0.9455 usd in the early hours of this morning.

The currency's rally was driven by figures showing private sector investment rose a quarterly 5.1 pct in the fourth quarter, well above market expectations of 3.1 pct. Analysts said this reinforces expectations that the Reserve Bank of Australia is set to hike rates at least twice this year.

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Euroshares open lower after mixed Wall St, Asia; telecoms outperform

At 9.07 am, the DJ STOXX 50 was down 13.99 points, or 0.42 pct, at 3,287.03 and the DJ STOXX 600 was down 1.30 points, or 0.39 pct, at 328.09 eur. In Europe, the telecoms sector grabbed the early spotlight as Deutsche Telekom, Portugal Telecom and Telefonica all released solid earnings reports.

Shares in Deutsche Telekom were 0.85 pct higher as it fourth quarter earnings results largely met expectations and showed strong gains in the company's client base at its T-Mobile USA unit and its domestic fixed-line operations.

Peer Portugal Telecom advanced 2.96 pct as its full-year earnings results beat consensus, despite showing a 14.4 pct decline in net profit. Over in Spain, Telefonica added 0.46 pct after the group raised its targets for the full-year 2008 and delighted investors by announcing a share buy-back programme.

Meanwhile, InBev gained 7.08 pct after posting a forecast-beating rise in full-year net profit on higher sales driven by its Latin American and Central and Eastern Eastern European operations. In the UK, British American Tobacco rose 1.86 pct as it unveiled an improvement in profits from operations to 2.9 bln stg from 2.6 bln stg and proposed an 18 pct rise in the dividend to 66.2 pence a share.

Insurer AXA lost 3.52 pct after unveiling a lower-than-anticipated net profit figure for the full year.
And Bayer shed 3.3 pct in early deals after the chemicals and pharma giant disappointed with its fourth quarter earnings results.

Among second-tier companies, Soitec plunged 11 pct after the French silicon-on-insulator specialist warned on profits and shares in Belgian wireless technology group Option retreated 6 pct following worse-than-expected fourth quarter and full year results this morning.

In other news, XStrata fell 4.25 pct following a report in the Financial Times which said that Companhia Vale do Rio Vale's putative 85 bln usd (43 bln stg) takeover of the group was last night on the brink of collapse after a major shareholder in the Anglo-Swiss miner refused to agree to the terms of the offer.

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Asian stocks fall as weak Japanese data bolster fears of global slump

The Kospi struggled immediately after the data but later recovered ground. It closed up 0.9 percent at 1,736.17.  The Nikkei was closed down 0.8 percent at 13,925.51 and the Topix ended down 0.8 percent at 1,353.03.

The Australian benchmarks fell with financials leading after the country's largest general insurer Suncorp Metway reported poor first-half results. The company said the global credit crunch and severe storms in Australia and New Zealand sent first-half earnings down 27.5 percent to 382 million Australian dollars.

The S&P/ASX 200 closed down 2 percent to 5,651.2 and the All Ordinaries was down 1.7 percent at 5,746.1. The Singapore Straits Times ended 0.7 percent lower at 3,074.15. The Shanghai Composite ended 0.80 percent lower at 4,299.51. The Hang Seng bucked the trend, closing 0.4 percent at 24,591.69.

Property stocks were key gainers on expectations they will benefit from lower rates. The Philippines market also outperformed as bargain hunting pulled the composite index gained 0.3 percent to close at 3,112.85. Recently battered property stocks such as Megaworld and Ayala Land led the gainers.

In Tokyo, Sumitomo Mitsui Financial Group fell 1.2 percent at 805,000 yen after Jiji Press reported that Japan's third largest banking group will consolidate its credit card, consumer and instalment financing units. Mitsubishi UFJ Financial Group shed 1.1 percent to 986.

Meanwhile, Japan's Fair Trade Commission said Thursday it has launched an on-site inspection of Sharp Corp and Hitachi Displays Ltd's facilities on allegations the companies have formed a cartel in the liquid crystal display (LCD) market for video game players.

Sharp lost 64 yen or 3.1 percent to 1,976, while Hitachi slipped 17 yen or 2.3 percent to 779. In Australia, Commonwealth Bank fell 5.1 percent to 44.05 dollars, National Australia Bank lost 4.3 percent to 29.97 and Suncorp-Metway was down 7.9 percent at 14.31.

The Bombay Stock Exchange's 30-share benchmark Sensex closed 1.51 points or 0.01 pct down at 17,824.48 and the National Stock Exchange's 50-share S&P CNX Nifty closed 16.7 points or 0.32 pct higher at 5,285.10.

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Metals - Copper dips on profit-taking, remains underpinned by fund buying

LONDON  - Copper prices turned lower on profit-taking, but remained well supported at higher levels as the continued flow of fund money into commodities kept the complex underpinned. With the dollar dropping to record lows against the euro, and the ongoing economic turmoil spooking investors out of equities, investors have been reallocating money into commodities which are seen as a good hedge in the current climate.

"We believe that the wall of money is looking for investment avenues during this period of economic flux and commodities provide that investment avenue," said Standard Bank analyst Leon Westgate.

Commodities priced in dollars often rise as the US currency weakens, as they become cheaper for overseas investors. The tangible nature of commodities also makes them a popular choice for investors during times of economic uncertainty, especially with buoyant growth in developing nations such as India and China proving resilient to the slowdown in the US thus far.

Copper prices have risen by around 20 pct since the beginning of the year, pushed up by declining London Metal Exchange stocks, the earlier loss of some Chinese production due to severe winter storms, and speculative buying interest. The number of financial players now in the market, however, has left prices vulnerable to profit-taking.

At 10.03 am, LME copper for three-month delivery was down slightly at 8,405 usd per tonne against 8,435 usd at the close yesterday. Earlier, the red metal rose as high as 8,495 usd a tonne.

Copper has also been overshadowed by other metals with tighter supply and demand fundamentals, making them more attractive to speculative investors. Both aluminium and tin have risen strongly since the beginning of the year, with the former gaining around 25 pct.

"Fund money from profit-taking in copper and new funds looking for a liquid inflation hedge may be the key drivers today on the back of a firm fundamental outlook," said Fairfax analyst John Meyer.

Aluminium was steady today at 3,075 usd a tonne against 3,091 usd, after rallying to a 21-month high of 3,129 usd in the previous session. It is feared that production outages in China due to heavy snow earlier this year and restrictions on power supplies to smelters in South Africa with the republic's ongoing electricity crisis could crimp supplies of aluminium.

Tin reached a new all-time high of 18,400 usd a tonne earlier today, amid expectations that supplies will remain tight throughout the year after production outages in Indonesia and Africa. Tin later eased back to trade at 18,100 usd against 17,950 usd at the close yesterday.

LME-monitored stockpiles of the metal have slipped to around a nine-month low, though there was a small uptick in inventory levels in today's report from the exchange, with stocks rising 55 tonnes to 10,180 tonnes. Among other base metals, lead was trading at 3,275 usd per tonne against 3,345 usd, zinc was steady at 2,680 usd against 2,685 usd and nickel was trading at 30,000 usd against 29,200 usd.

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