US & World Daily Markets Financial Briefing 29-07-2008

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Stocks jump after upbeat consumer confidence data

NEW YORK - Stocks rose Tuesday, rebounding a day after their steep tumble as a jump in consumer confidence offset some of the market's increasing concerns about the financial sector. Falling oil prices also helped lift the Dow Jones industrial average by about 125 points.

The Conference Board's index of consumer confidence rose to 51.9 in July from 51 in June, a welcome signal for investors worried about the mood of investors, which is key because their spending accounts for more than two-thirds of U.S. economic activity.

A bounce was also to be expected after the Dow lost nearly 240 points Monday on worries about the sagging financial sector. Still, the upbeat consumer reading did help soothe investors concerned about growing losses related to the credit crisis, especially after Merrill Lynch & Co. announced another $5.7 billion in write-downs.

Inflation concerns also eased as oil extended the declines of recent weeks. Light, sweet crude fell $3.13 to $121.60 on the New York Mercantile Exchange.

In midmorning trading, the Dow rose 132.14, or 1.19 percent, to 11,263.22. Monday's 239-point decline put the blue chips back in bear market territory. Broader stock indicators also rose. The Standard & Poor's 500 index rose 13.43, or 1.09 percent, to 1,247.80, and the Nasdaq composite index advanced 41.25, or 1.82 percent, to 2,305.47.

Bond prices fell after a rally Monday in which investors rushed to the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.08 percent from 4.01 percent late Monday.

The dollar was mostly higher against other major currencies, while gold prices fell. Merrill, which plans to issue new stock to raise $8.5 billion, said the latest write-downs are tied to additional losses on the sale of mortgage securities and other instruments. The disclosure was a setback for investors hoping that financial companies were close to putting the credit crisis behind them.

Merrill's decision comes only weeks after the world's largest brokerage posted its fourth straight quarterly loss. The stock fell $1.21, or 5 percent, to $23.12.

Not all the economic readings of the day were positive. More downbeat news arrived about housing -- home prices extended their slide in May. The S&P/Case-Shiller 20-city index declined 15.8 percent from a year earlier, the sharpest drop since its inception in 2000. The narrower 10-city index is down 16.9 percent, its biggest decline in its 21-year history.

But better-than-expected quarterly earnings likely helped shore up sentiment United States Steel Corp.'s profit more than doubled in the second quarter following an increase in demand and pricing. The stock jumped $21.51, or 15 percent, to $166.84.

Colgate-Palmolive rose $4.59, or 6.7 percent, to $73.15 after reporting that its second-quarter earnings rose 19 percent as price increases helped the consumer products company offset rising input costs. Advancing issues outnumbered by nearly 3 to 1 on the New York Stock Exchange, where volume came to 268.5 million shares.

The Russell 2000 index of smaller companies rose 10.64, or 1.53 percent, to 706.79. Overseas, Japan's Nikkei stock average fell 1.46 percent. In afternoon trading, Britain's FTSE 100 rose 0.05 percent, Germany's DAX index advanced 0.42 percent, and France's CAC-40 declined less than 0.01 percent.

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Forex - Pound dented by weak retail sales survey

LONDON  - The pound dropped sharply in value against other currencies after a survey by the Confederation of British Industry showed UK high street sales are falling off the charts. In its distributive trades survey, the CBI said 61 percent of respondents said retail sales in the first half of June were lower than a year ago, while 25 percent said they had risen.

The balance of -36 percent is the lowest reading since the survey began in July 1983 and marks a sharp fall from June's -9 percent. Analysts had expected a more modest fall to -15 percent. "The survey... significantly bolsters the case for the Bank of England to hold off from raising interest rates despite current elevated inflation levels and risks," said Howard Archer at Global Insight.

At 12.01 GMT, the pound had fallen to $1.9880, from $1.9945 at 11.00 a.m. before the release of the data. Meanwhile, the euro was stable against other currencies, consolidating gains against the dollar, after some mixed economic data from France showed a fall in consumer confidence was accompanied by inflationary pressures.

France's consumer confidence fell to -48.0 in July, lower than the expected -47.0 and the previous month's -46.0. Producer prices, meanwhile, rose by 7.3 percent in June, just short of forecasts for a 7.4 percent rate but still the highest since records began in 2000. Separately, a survey of the country's manufacturing sector showed activity continues to wilt under the pressure of a strong currency and high costs.

"This will likely have some knock-on effects on the labour market as the pace of job cuts accelerated in Q2 and is expected to follow the same trend in the third quarter, making for an overall gloomy outlook for the French economy," said Blerina Uruci at IFR Markets.

The euro had earlier gained on the dollar, which fell across the board after news that investment bank Merrill Lynch would take a $5.7 billion third quarter write-down on mortgage-related assets, forcing it to sell shares to raise $8.5 billion.

The news caught markets by surprise, both because Merrill had just announced earnings the previous week and because investors expected such write-downs to be mostly over.

"The big issue here seems to be that markets had started to price in an end to this bad news so the fact it's coming back to the fore is certainly weighing (on the dollar) and there's concern that with numbers such as U.S. consumer confidence due for release later in the session, then the greenback could still have further to unwind on the major crosses," said James Hughes at CMC Markets.

The Conference Board's consumer confidence indicator is expected to show a further decline to 50.0 in June from 50.4 in the previous month. The euro traded at $1.5705 from $1.5745 at 0845 GMT.

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Euroshares lower midday as financials weigh; on disappointing earnings updates

At 11.52 a.m., the DJ STOXX 50 was down 14.86 points, or 0.53 percent, at 2812.08 and the DJ STOXX 600 was down 2.32 points, or 0.83 percent, at 276.41. Spread bettors, IG Index, said the Dow looks set to tick around 11 points higher in opening deals after falling more than 200 points overnight.

European banks remained weaker, tracking falls by their U.S. peers Monday with the DJ STOXX 600 banks index down 3.11 percent as concern about the effect of the global economic downturn continues to dog the sector.

Societe Generale shares slumped 4.59 percent, Unicredit fell 3.47 percent and Deutsche Bank shares were off 3.62 percent. Banco Santander, down 1.58 percent, outperformed after its reported a better than expected first-half net profit of 4.73 billion euros.

Shares in Woolworths Group hit a new low Tuesday after the troubled variety store retailer reported a sharp deterioration in both sales and profit margins at its high street business over the last six weeks in what Panmure Gordon described as a "dreadful" update. Dresdner Kleinwort cut its recommendation to 'sell' from 'hold'. Shares tumbled 16.02 percent.

Akzo Nobel shares dropped 11.37 percent after it warned it no longer expects to meet its full-year 2008 target as it reported a 6 percent decline in second quarter net profit before fair value adjustments. Sales for the period were 3.870 billion euros compared with a pro forma result of 3.791 billion last year and ahead of estimates of 3.730 billion to 3.797 billion.

EBITDA was 526 million euros, down from a pro forma 542 million due to an adverse currency impact of 7 percent and higher raw materials and energy prices, but in line with estimates of 505 million to 527 million euros.

Net profit before fair value adjustments fell 6 percent to 258 euros from 274 million euros. Clariant fell back five percent after its numbers.

However, DSM raised its full-year operating profit guidance to around 970 million euros saying there is further potential upside. "Clearly these are extremely good results, and will force analysts to raise estimates. The market is likely to take these results very positively, and we expect this to start another period of outperformance from DSM stock," said an analyst who did not wish to be named. Shares climbed 7.36 percent.

BP moved 1.88 percent higher in early deals, as the group posted better-than-expected second-quarter profits, leading Cazenove to keep an 'outperform' rating on the stock. Technology stocks were also mostly higher. SAP added 7.36 percent as investors took heart from better than expected revenue growth and the group's company's reiterated guidance for 2008.

Deutsche Bank upgraded the shares to 'buy' from 'hold'. Alcatel-Lucent added 2.09 percent as investors cheered news chief executive Patricia Russo and chairman Serge Tchuruk have resigned.

The group also said it is seeing stronger-than-expected demand for GSM/W-CDMA mobile access in emerging markets, especially in Asia and feels "positive" about prospects in China, in both GSM and 3G for the fourth quarter and next year.

Shares were off opening highs however as another weaker than expected earnings performance from the group capped gains.

Atos Origin, up 2.03 percent, lifted its full-year growth forecasts and said it now expects organic sales growth of more than five percent after its net profit rose 118 percent to 124.7 million euros and sales rose 6.4 percent to 2.864 billion euros in the first half.

Discount supermarket group Colruyt added 4.03 percent after it reported a forecast-beating rise in first-quarter sales. First-quarter sales rose 14.7 percent to 1.57 billion euros from 1.37 billion last year, beating estimates of 1.49 billion euros.

Analysts described the results as "exceptionally strong". Iberia shares were suspended after British Airways said the two flag carriers had begin talks -- supported by both boards -- about an all-share merger. Ahead of suspension shares had been 4.27 percent higher. British Airways shares were up 8.64 percent.

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JAPAN

The Nikkei 225 Stock Average finished down 194.33 points or 1.5 percent at 13,159.45, off a session low of 13,018.22.
   
The broader Topix shed 19.15 points or 1.5 percent to 1,281.64.  Decliners outnumbered gainers 1,312 to 309, with 86 issues unchanged. Volume rose to 1.72 billion shares from 1.57 billion shares on Monday.

SOUTH KOREA

The KOSPI finished down 31.09 points or 2.0 percent at 1,567.20, after moving between 1,542.89 and 1,573.62.

AUSTRALIA

Australian shares fell 1.4 percent on Tuesday as worries about growing credit market losses triggered more selling among financial firms such as Commonwealth Bank of Australia Ltd .
   
The benchmark S&P/ASX 200 index fell 69.7 points to 4,852.4 by 0527 GMT, after falling a total of 4.3 percent in the previous two sessions.
   
New Zealand's benchmark NZX-50 index fell 0.65 percent, or 21.07 points, to 3,235.50. The most heavily weighted stock, Telecom Corp of New Zealand , closed down 0.6 percent at NZ$3.59.

CHINA

The benchmark Shanghai Composite Index closed down 52.70 points or 1.82 pct at 2,850.31 after moving between 2,868.01 and 2,827.70. Turnover fell to 59.26 bln yuan from 64.49 bln yuan yesterday.

The Shanghai B-share Index closed down 1.18 points or 0.55 pct at 213.72, while the Shenzhen B-share Index fell 5.54 points or 1.18 pct to 462.77.

TAIWAN

Taiwan's financial markets were closed yesterday due to Typhoon Feng Wong.  The weighted index closed down 219.15 points or 3.03 pct at 7,014.47, after moving between 6,958.89 and 7,052.58.

Turnover was 86.80 bln twd. The construction sector was down 6.40 pct, financials were 3.79 pct lower
and electronics was down 3.02 pct.

SINGAPORE

The benchmark Straits Times index closed down 23.80 points or 0.8 percent at 2,886.56.

INDONESIA

The composite index was up 3.01 points or 0.1 percent at 2,278.68, off a low of 2,249.54. The LQ-45 was down 0.1 points at 474.20. Decliners led gainers 115 to 82, with 70 stocks unchanged.
   
Volume was 1.7 billion shares valued at 2.85 trillion rupiah. The Indonesian rupiah was trading at 9,118/9,128 to the U.S. dollar, compared to 9,120/9,125 late Monday.

THAILAN

BANGKOK - Thai shares closed lower on Tuesday amid renewed fears about a slowdown of the global economy and weakness in the US financial sector. Concern over political uncertainty in Thailand also depressed market sentiment, causing investors to stay on the sidelines.
   
The Stock Exchange of Thailand (SET) composite index lost 8.80 points or 1.28 percent to close at 676.73 points, while the blue-chip SET-50 index fell 7.92 points to 474.10.

HONG KONG

The Hang Seng Index was down 429.21 points or 1.9 percent to close the session at 22,258.00, off a low of 22,089.09.

INDIA
  
The 30-share benchmark Sensitive Index of the Bombay Stock Exchange tumbled 557.57 points or 3.89 percent to 13,791.54 and the broader 50-share S&P CNX Nifty of the National Stock Exchange pared 142.25 points or 3.28 percent to

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Oil prices rise above 126 dollars

LONDON - Oil prices climbed further on Tuesday, trading above 126 dollars in London, a level described as "abnormal" by OPEC president Chakib Khelil.

Brent North Sea crude for September delivery gained 74 cents to 126.58 dollars a barrel. New York's main contract, light sweet crude for September advanced 71 cents to 125.44 dollars a barrel.

Khelil said Tuesday that crude oil prices above 120 dollars a barrel were "abnormal" and could fall to around 78 dollars under the right circumstances. "If the dollar continues to strengthen and the political situation (regarding Iran) improves, then the long-term prices will be about 78 dollars," Khelil told reporters in Jakarta, adding the market was well-supplied with oil.

A strong US currency weighs on demand for dollar-priced goods because they become more expensive for buyers holding weaker currencies. Oil prices had struck record highs above 147 dollars a barrel on July 11 as the US unit weakened and owing to tensions over Iran.

They have since fallen by more than 20 dollars on concerns that the global economic slowdown will weigh on energy demand, particularly in the United States -- the world's biggest consumer of oil.

Crude futures had begun the week higher, rallying on Monday after militants attacked a Royal Dutch Shell pipeline in Nigeria, leading the Anglo-Dutch energy giant to reduce output.

Prices had also climbed as the market tracked developments over oil-rich Iran's disputed nuclear programme. The Islamic Republic's President Mahmoud Ahmadinejad said Monday that if the United States adopted a genuinely new approach to his country, Tehran would respond in a positive way.

Metals - Copper lower on rising stocks, fear of demand slowdown

LONDON - Rising copper stocks and fears of slow demand ahead pushed prices lower but some weakness in the dollar limited losses. Inventory stored in LME stamped warehouses across the globe have risen to 136,725 tonnes overnight, the most since early this year.
   
Meanwhile weak equity markets, a barometer for economic growth, also dampened sentiment. "Prices over the coming months are likely to ease, with weakening demand conditions dictating sentiment," said ANZ analyst Mark Pervan.

"Major leading economic indicators are pointing downwards, metals consumers are slowing for summer holidays and Chinese demand may ease post the Olympics," he added.
   
The dollar was the main supporting factor for most commodities Tuesday. Weakness in the U.S. currency, partly because of lower equity markets and trouble in the U.S. banking sector, made raw materials priced in the greenback relatively cheaper for those trading in other currencies.
   
But, some reckon that weakness may not last. "The U.S. dollar still looks shaky, but is showing signs of bottoming from a six-year decline," said Pervan.
   
At 10:26 a.m., three-month copper on the LME fell to $7,970 per tonne from $7,995 at the close Monday.
  
Elsewhere on the LME, aluminium was lower at $3,010 per tonne from $$3,016, nickel rose to $19,000 per tonne from $18,750, zinc was down at $1,900 per tonne from $1,925, tin climbed to $22,700 per tonne from $22,575 and lead jumped to $2,279 per tonne from $2,220 at the close Monday.

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