US & World Daily Markets Financial Briefing 28-05-2008

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Stocks fluctuate following durable goods data

NEW YORK - Stocks fluctuated in a narrow range Wednesday after a government report showed orders for big ticket items declined less than expected last month.

The Commerce Department's report that orders for durable goods -- which include aircraft and machinery but also consumer items like cars, refrigerators and computers -- slipped 0.5 percent came as a surprise. Excluding transportation, orders rose 2.5 percent -- the steepest increase in nine months. And orders for electrical equipment and appliances jumped 27.8 percent, the largest-ever increase.

The numbers appeared to help quell some investors' concerns about the economy. Wall Street has worried that high energy prices have been hurting both businesses and their customers. Hesitation among shoppers isn't what Wall Street wants as consumer spending accounts for more than two-thirds of U.S. economic activity.

In midmorning trading, the Dow Jones industrial average rose 12.54, or 0.10 percent, to 12,560.89. Broader stock indicators were lower. The Standard & Poor's 500 index slipped 2.12, or 0.15 percent, to 1,383.23, and the Nasdaq composite index fell 7.31, or 0.29 percent, to 2,473.93.

Declining issues narrowly outnumbered advancers on the New York Stock Exchange, where volume came to 174.5 million shares. Stocks pared early gains as oil came off its lows of the day. Light, sweet crude fell 22 cents to $128.63 per barrel on the New York Mercantile Exchange. A decline in oil prices helped stocks finish higher Tuesday.

Bond prices fell following the durable goods report. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.97 percent from 3.92 percent late Tuesday.

The dollar advanced against most other major currencies, while gold prices fell. The Russell 2000 index of smaller companies slipped 1.66, or 0.23 percent, to 732.73.

Overseas, Japan's Nikkei stock average closed down 1.32 percent. In afternoon trading, Britain's FTSE 100 rose 0.23 percent, Germany's DAX index advanced 1.19 percent, and France's CAC-40 rose 1.45 percent.

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Forex - Euro gains dry up as oil eases, U.S. data beats predictions

LONDON - The euro's early gains dried up as oil prices continued to come off recent highs, taking some of the edge off worries about runaway inflation.

After setting records above $135 last week oil has eased off slightly, dropping under $130 as the chorus of voices complaining about its debilitating effects grew louder. Throughout Europe, demonstrations over the high price of oil are putting governments under pressure, leading French President Nicolas Sarkozy to call for the suspension of Europe's value-added tax on oil.

Benedikt Germanue at UBS said said the dollar was buoyed by slightly receding fears about the price of oil, which in turn aided the recovery of risk appetites.

Still, he believes the near-term outlook for the dollar remains mixed. "Falling oil prices may not necessarily lead to a stronger dollar, and any resumption of WTI (the benchmark crude traded in New York) upside would again stoke inflation fears, pressuring the dollar," he added.

The day's only key piece of U.S. data also proved dollar positive. U.S. durable goods orders fell in April, but core capital goods orders showed unexpected strength with the best performance in a year and a half. Total new durables orders were off 0.5 pct, the Commerce Department reported today, but excluding transportation goods, they were up 2.5 pct.

Economists polled by Thomson's IFR Markets had expected orders to fall 1.1 percent for the month overall and to be off 0.7 percent ex-transportation. Earlier though, the dollar was on the back foot as the euro gained ground after from signs of rising inflationary pressures in Germany.

"The latest CPI data from German states highlights that the risk to the whole German release remains skewed to the topside," said Matthew Foster-Smith at IFR Markets.

For the euro zone as a whole, analysts currently expect May inflation to accelerate again to an annual 3.6 percent, from 3.3 percent last month, partly as a result of higher energy prices. That would match the March figure, which was the highest since the euro was created.

"This is all pointing towards the ECB having to continue with its hawkish stance to keep inflationary pressures in check and although this may be bad news for consumers, the accompanying strong yields on euro deposits should leave the currency looking upbeat as we move into the summer," James Hughes, analyst at CMC Markets said.

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Euroshares open up on Wall St gains; broker changes lift SAP, Generali

At 9:14 a.m., the DJ STOXX 50 was up 13.32 points, or 0.42 percent, to 3159.42 and the DJ STOXX 600 was up 1.33 points, or 0.42 percent, at 318.53.

In Europe, WestLB upgraded Generali to 'add' from 'hold' on valuation grounds. The shares were further boosted by a report suggesting the Italian group has pulled out of the tender for the insurance operations of Royal Bank of Scotland Group Plc. (RBS) because the price asked by the UK bank is considered too high.

Other insurers were also higher, boosted by strength in global markets. Aegon added 1.65 percent, Axa was 1.5 percent higher. SAP climbed 2.37 percent after Cheuvreux upgraded the shares to 'selected list' from 'underperform'.

And a bullish note from the influential broker lifted France Telecom shares 1.03 percent. Deutsche Post added 1.11 percent ahead of its update later on the future of its DHL express unit's U.S. operations, with analysts expecting the group to announce plans to outsource some of its business to outsource USPS (United States Postal Service).

But oil shares were mostly lower as oil prices continued to retreat in Asian trade after fresh data triggered concerns that the U.S. economy will slow down markedly, dampening oil demand.

New York's main oil futures contract, light sweet crude for July delivery, shed 5 cents to $128.80 per barrel. The benchmark contract closed at $128.85 on Tuesday, down $3.34 from Friday, the last trading day before the U.S. Memorial Day holiday on Monday.

London's Brent North Sea crude for July slipped 12 cents to $128.19 a barrel, after settling $4.06 lower at $128.31 on Tuesday. Eni fell 1.15 percent, Total fell 0.27 percent and Repsol slipped back 0.27 percent.

And Atos Origin slumped 5.01 percent after said it has reached an agreement with its two largest shareholders, activist investment funds Centaurus Capital and Pardus Capital Management, over nominations to its supervisory board.

British Energy slipped 0.88 percent lower as today's update failed to provide any more news on bids for the UK government's stake in the nuclear group.

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Asian stocks dip on oil, U.S. worries; resources fall on profit-taking

In Tokyo, the Nikkei closed down 1.3 percent at 13,709.44 and the broader Topix was off 1.4 percent at 1,348.69. Japanese stocks opened higher after Wall Street rebounded overnight on falling oil prices and better-than-expected U.S. housing data, but investor interest waned as the yen strengthened and losses widened in the afternoon session.

In Sydney, the S&P/ASX 200 finished down 1.2 percent at 5,648.1 and the All Ordinaries was 1.1 percent lower at 5,754.5. Index leader BHP Billiton, which has oil assets in its portfolio, tumbled 3.4 percent to A$45.10 while its takeover target Rio Tinto lost 3.4 percent to A$141.95. Oil and gas sector leader Woodside Petroleum fell 3.0 percent to A$63.00.

Commodity stocks in Tokyo also slipped, with trading house Mitsubishi Corp. dropping 3.5 percent to 3,620 yen. Nippon Oil plunged 4.6 percent to 752 yen and oil and gas field developer Inpex Holding slumped 4.6 percent to 1.25 million yen.

Apart from crude oil prices stabilizing, Kang of Korea Investment & Securities said the South Korean market also needed to take a breather following the rally since mid-March. The KOSPI closed down 19.59 points or 1.1 percent at 1,805.64.

Hong Kong's Hang Seng index closed down 0.1 percent at 24,249.51 as weakness in energy and commodities stocks offset gains in airline stocks after oil prices retreated.

Offshore oil producer CNOOC Ltd. fell 5.1 percent to HK$14.20. Jiangxi Copper and Aluminum Corp. of China lost 1.4 percent to HK$17.24. Cathay Pacific Airways advanced 3.1 percent to HK$15.50 and Air China climbed 2.6 percent to HK$5.59. China Southern Airlines jumped 2.6 percent to HK$4.66 and China Eastern Airlines gained 0.9 percent to HK$3.42.

The Shanghai Composite bucked the trend, advancing 2.5 percent to 3,459.03 on expectations that the government will soon launch the long-awaited stock index futures.

Elsewhere, the Singapore Straits Times index closed up 0.6 percent at 3,132.78 but the Malaysian KLCI finished down 1.0 percent at 1,260.58.

The Philippines Composite finished down 0.8 percent at 2,833.27 ahead of the release of gross domestic product data for the first quarter on Thursday.

The Jakarta Composite ended up 1.5 percent at 2,433.77 after three straight days of declines. The weighted index closed down 1.28 percent at the day's low of 8,665.73, after moving to a high of 8,834.52.

The 30-share main stock index, the Sensex, of the Bombay Stock Exchange (BSE) closed up 249.78 points or 1.53 percent at 16,525.37 points and the broader 50-share S&P CNX Nifty of the National Stock Exchange (NSE) gained 58.55 points or 1.20 percent to close at 4,918.35 points.

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Metals - Copper falls on rising stockpiles, dollar strength

LONDON - Copper fell in London trade on Wednesday, after a steep rise in stockpiles of the red metal raised fears of weakening demand. A rebound in the dollar also weighed across commodities, with those traded in the greenback becoming relatively more expensive for holders of other currencies.
   
At 2:31 p.m., London Metal Exchange copper for three-month delivery was trading at $8,060 per tonne against $8,190 per tonne at the close on Tuesday. Stockpiles of the red metal monitored by the LME rose by 1,400 tonnes to stand at 125,800 tonnes in today's report from the exchange, raising fears of lower demand from key consumers.
   
The sell-off across the base metals complex this morning has also been extended by a drop across commodities, with lower oil prices and a firmer dollar hitting sentiment.
   
Metals analyst William Adams at Basemetals.com said: "In the absence of fresh supply disruptions in the base metals, the path of least resistance seems to have been to the downside recently, however dips have remained well supported as bargain hunters have stepped in to take advantage of these lower price levels."
   
Copper has fluctuated in recent sessions as the red metal searches for fresh direction due to an unclear demand outlook, with fears that rising inflation and the economic slowdown in the United States could crimp demand despite high hopes for Chinese consumption levels.
   
However, prices have taken some support from better-than-expected U.S. durable goods numbers for April. The Commerce Department reported on Wednesday that orders for durable goods dropped 0.5 percent, dragged down by declines in demand for commercial aircraft and cars, against analyst expectations for a much bigger fall.
   
Orders for electrical equipment and appliances surged by 27.8 percent, the biggest increase on record, with strong demand also registered for primary metals, machinery and communications equipment indicating that some sectors of the economy are holding up well.
   
Paul Ashworth at Capital Economics said it could be another sign that, "the recession, if it is one, is not developing into a severe downturn."

In other metals traded on the LME, nickel continued to slide lower, trading at $22,800 against $23,300 a tonne at the close yesterday. The grey metal reached a two-year low last week of $22,350 a tonne, as investors bet on easing demand and rising supply.
   
JP Morgan analyst Michael Jansen said yesterday that ongoing substitution of pig iron for nickel in China during stainless steel production, and an acceleration in mine supply in the western world was likely to continue to weigh on prices.

Tin eased to $23,800 against $24,200, while lead slipped to $2,000 per tonne against $2,055 per tonne at the close on Tuesday. Aluminium fell to $2,945 a tonne from $2,997, while zinc was trading at $2,105 against $2,151.

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