US & World Daily Markets Financial Briefing 30-04-2008

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Stocks rise ahead of Federal Reserve's rate decision

NEW YORK  - The stock market rose Wednesday as investors awaited the Federal Reserve's decision on interest rates and its assessment of the economy.

Most investors expect the central bank to again lower its benchmark fed funds rate, this time by a quarter point, to 2 percent. However, many also believe policymakers will signal their intention to put rates on hold to fight inflation. The Fed is scheduled to announce its decision at 2:15 p.m. EDT.

Though inflation appears to be a growing threat, that's not to say economic weakness is not a risk, either. The Commerce Department estimated that the U.S. gross domestic product rose at a very modest seasonally adjusted annual rate of 0.6 percent during the first quarter, while the U.S. Chicago purchasing managers' index showed a second straight month of contraction in Midwest manufacturing.

However, both readings were better than anticipated -- economists had forecast a 0.5 percent rise in first-quarter GDP, and a reading of 48.0 for the April purchasing managers' index instead of the reported 48.2.

Investors also pored over a mix of earnings reports from a number of consumer-oriented companies -- particularly General Motors Corp., SAP AG and Procter & Gamble Co.

In midmorning trading, the Dow Jones industrial average rose 50.07, or 0.39 percent, to 12,882.01.

Broader stock indicators also advanced. The Standard & Poor's 500 index futures rose 3.95, or 0.28 percent, to 1,394.89, while the Nasdaq composite index added 6.33, or 0.26 percent, to 2,432.43.

Bond prices lifted as well. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.80 percent from 3.82 percent late Tuesday.

The dollar was mixed against other major currencies, while gold prices edged higher.

Oil prices moved higher after sliding of more than $3 a barrel in the previous session on a strengthening dollar and data showing a dramatic drop in American fuel demand. Light, sweet crude for June delivery rose 60 cents to $116.23 a barrel on the New York Mercantile Exchange.

GM lost $3.3 billion in the first quarter as strong overseas growth was offset by a strike at a supplier and weak U.S. sales. However, the loss was smaller than Wall Street analysts expected, and shares jumped $2.01, or 9.5 percent, to $23.21.

Software maker SAP AG said its profit slipped in the first quarter because of the weaker dollar and its takeover of another software company, Business Objects. Though sales were higher and SAP raised its 2008 outlook, SAP shares fell $1.63, or 3.1 percent, to $50.82.

And meanwhile, Procter & Gamble Co. said price increases and cost controls helped offset higher commodity costs, pushing its third quarter profit up 8 percent. P&G also lifted its full-year outlook, and its shares rose $2.03, or 3.1 percent, to $67.93.

Meanwhile, Citigroup Inc. said late Tuesday it plans to sell $3 billion of common stock to boost its capital levels. The largest U.S. bank is raising more capital to offset more than $45 billion of write-downs and credit losses it has taken since June 30. Citigroup shares fell 66 cents, or 2.6 percent, to $25.66.

The Russell 2000 index of smaller companies rose 3.15, or 0.44 percent, to 722.08.

Advacing issues outnumbered decliners by about 9 to 5 on the New York Stock Exchange, where volume came to 189.7 million shares. Britain's FTSE 100 rose 0.14 percent, Germany's DAX index rose 0.48 percent, and France's CAC-40 rose 0.11 percent.

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Forex - U.S. dollar steady as market awaits U.S. rate decision

LONDON - The U.S. dollar retained a firm tone ahead of today's expected interest rate cut from the U.S. Federal Reserve and some more optimistic sentiment regarding the U.S. economic outlook. With the markets pricing in a quarter point rate cut from the Fed to 2.0 percent, the focus will be on the accompanying statement and any signs of optimism that the worst may be over for the economy, allowing rate-setters to turn their attention to inflation concerns.

"The FOMC decision is the biggest hurdle for the dollar to overcome but confidence is high across the market that a 25 basis point rate cut and a neutral stance will be forthcoming -- a view with which we concur," said Neil Mellor, currency strategist at Bank of New York Mellon.

Though some of the stresses in the financial markets since the last meeting in March may have reduced, most analysts think higher longer-term rates, elevated spreads, softer labour markets and slumping consumer confidence point to ongoing downside risks to the world's largest economy.

"That strengthens the argument for a flexible statement, but on balance we think the wording will be seen as paving the way for a pause at the next (June) meeting," said Gavin Friend, currency strategist at Commerzbank. If that does not materialise, then the euro may climb back up to the 1.5850 dollar mark before Friday's closely watched U.S. jobs report for April, Friend, said.

Ahead of the Fed decision on Wednesday night, traders will be assessing the first estimate of U.S. first-quarter GDP growth. Despite recession fears in the United States, most economists on Wall Street expect a barely positive reading of 0.5 percent annualised GDP growth in the first quarter.

In recent months, the dollar has tumbled sharply against the euro after the Fed slashed three percentage points off its base rate since September in a bid to boost growth. The lower U.S. rates have made the dollar less attractive to investors than the euro as the European Central Bank has kept its rates on hold at 4.0 percent.

Today's euro zone economic news helped to lift expectations slightly the ECB may be tempted to cut its borrowing costs sooner than expected, further pressuring the single currency against the U.S. currency Euro zone inflation eased to a provisional 3.3 percent in April from 3.6 percent in March. The March reading was the highest recorded since the start of the monetary union.

At the same time, the European Commission said its euro zone economic sentiment indicator fell to 97.1 in April from 99.6 in March, reaching its lowest level since late 2005. Economists said this points to a further slowdown in euro zone growth.

Elsewhere, the British pound fell against the dollar after more dismal UK economic news. While the Nationwide building society reported that house prices were down over the year for the first time in nearly 12 years, pollsters GfK/NOP found consumer confidence at its lowest level since 1992.

The downbeat findings come a day after the Confederation of British Industry reported that retail sales growth slowed sharply in April and mortgage approvals during the month were at their lowest level for 16 years. "Sterling has come under pressure following the continued weak UK data from the housing and consumer sectors," said Hans Redeker, global head of foreign exchange research at BNP Paribas.

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Euroshares lower midday, caution ahead of FOMC, earnings in focus

At 11:40 a.m., the DJ STOXX 50 was down 10.78 points or 0.34 percent to 3,202.26, while the DJ STOXX 600 was 1.20 points or 0.37 percent lower at 319.47.

Citigroup shares are likely to come under pressure after it said late Tuesday it will sell $3 billion of its common stock in a public offering.

In Europe, resource stocks were underperforming, down 1.2 percent in aggregate according to the DJ STOXX 600 for the industry, after the price of gold and other commodities fell overnight.

Shares in BHP Billiton fell 1.98 percent, while Rio Rinto was down 2.76 percent and Vedanta lost 6 percent. Antofagasta fell 1.66 percent after it said its copper production rose 8.2 percent in the first quarter, but group cash costs more than doubled.

Meanwhile, earnings news were in the spotlight throughout the morning, with German engineering group Siemens leading the DAX gainers board, up 1.06 percent, after the group released its second-quarter report, which failed to meet expectations overall but showed improvements in incoming orders.

The insurance sector was outperforming, up 0.15 percent in aggregate, with Storebrand charging ahead, up 9.16 percent after a legislation change in Norway meant the firm soundly beat expectations with its first quarter results.

According to TDN Finans, Storebrand had been expected to post a pretax loss of 91 million crowns, but as it was, profits before tax came in at 402.2 million. "Most analysts were guessing about the results a bit because of market turbulence," one said, but pointed to underlying strength in the quarterly numbers.

U.K. peer Standard Life was trading around the flat line after a mixed sales report for the first quarter which beat forecasts but raised some concerns about the group's outlook. Responding to the numbers, Merrill Lynch said sales were 7 percent ahead of its own and consensus forecasts, but within the mix, the closely-watched UK SIPP (Self Invested Personal Pension) sales were disappointing.

Turning to the chemicals industry, Swiss specialty group Clariant soared 14.7 percent after its first-quarter operating profit came in getter than expected. Analysts particularly welcomed the reiteration of its full year guidance as a profit warning had been widely expected after peer Ciba's weak results yesterday.

Peer Wacker Chemie jumped more than 7 percent after the silicon manufacturing specialist posted strong bottom-line figures on sales that were just below market expectations.

Turning to today's casualty list, software provide SAP fell back 4.6 percent after its first-quarter report was below estimates and as the group shocked investors with news that it has delayed the target for its BusinessByBusiness software to reach $1 billion in sales by 6 months.

Over in France, Alcatel-Lucent shed 7.35 percent after it cut its sales guidance for 2008 and reported sales of 3.86 billion euros for the first quarter, below the 4.0 billion forecasted by analysts. Other companies reporting earlier Wednesday include Fresenius Medical Care, Novo Nordisk, BME and Telenor.

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Asian stocks mostly end lower ahead of FOMC decision; Shanghai gains

Singapore's Straits Times index closed down 0.8 percent at 3,147.79. In Tokyo, the Nikkei 225 closed down 0.3 percent at 13,849.99 after Japan's industrial output fell a seasonally adjusted 3.1 percent in March from February, the biggest fall since January 2003, as companies cut production due to rising inventories amid a slowing demand from the United States.

Earlier in the day, the Bank of Japan decided to leave its overnight call rate target unchanged at 0.5 percent. The central bank wants more time to further assess how much the U.S. economy, one of its most important trading partners, will slow down and to what extent the continuing credit crisis and housing market weakness in the U.S. will hurt global economic growth.

The Australian market was dragged lower by losses in the resources sector after commodity prices dropped overnight. The All Ordinaries finished down 0.3 percent at 5,657, while the S&P/ASX index closed down 0.2 percent at 5,595.4.

"The resources sector is down heavily on lower gold and metal prices last night. On top of that, we see the financial sector also down on what is perceived as a continuing weakness in the U.S. housing sector," said Dominic Vaughan, a senior dealer at CMC Markets in Sydney.

Index leader BHP Billiton dropped 3.7 percent to A$42.27 and Rio Tinto fell 3.6 percent to A$136.08.

Gains in Origin Energy helped pare market losses. The stock closed up 33.2 percent at A$13.95, off an all-time high of A$14.60, after receiving a takeover bid from the U.K.'s BG Group that values the company at A$12.9 billion or A$14.70 a share. Origin said it has not made a decision on the offer and remains in talks with BG. Shanghai gains Shares in China continued to outperform, with the Shanghai composite closing up by 4.8 percent at 3,693.11 led by financial stocks after the sector's heavyweights posted strong first-quarter earnings.

Industrial and Commercial Bank of China (ICBC), the country's largest commercial bank, closed 3.26 percent higher at 6.66 yuan after reporting that its first-quarter net profit rose 77 percent to 33.11 billion yuan.

Bank of Communications gained 3.34 percent to 10.83 yuan after its first-quarter net profit rose 108 percent to 7.89 billion yuan. China Construction Bank added 5.30 pct to 8.35 yuan, while Bank of China was up 3.14 pct at 5.25 yuan.

Ping An Insurance (Group) Co of China closed up 6.07 percent at 69.00 yuan after first-quarter net profit rose 26.2 percent  year-on-year to 4.86 billion yuan. China Life Insurance added 8.23 percent to 36.69 and China Pacific Insurance rose 5.71 percent to 29.27 yuan.

Westpac fell 4.1 percent to A$13.95, National Australia Bank slipped 0.3 percent to A$30.21, ANZ lost 0.7 percent to A$21.90, but Commonwealth Bank of Australia inched up 0.1 percent to A$44.85.

"With investors thinking the worst of the credit crisis may be over as the Fed is taking another step to do something about it, that may be giving a small boost to investment banks today," said Elvina Simpson, a market analyst at CommSec in Sydney.

In Hong Kong, HSBC Holdings added 0.5 percent to close at HK$135.10. Europe's biggest bank said Tuesday the timetable for its acquisition of Korea Exchange Bank (KEB) from current shareholder Lone Star will be extended until July 31 from the original April 30 deadline.

The decision to extend the deadline was reached after South Korea's top financial policymaker reaffirmed his plan to resolve the long-delayed deal as soon as possible.

The Hang Seng index closed 0.6 percent lower at 25,755.35. The KOSPI index ended 0.8 percent higher at 1,825.47, the Kuala Lumpur Composite Index (KLCI) ended down 0.3 percent at 1,279.86. The Jakarta index closed 0.04 percent higher at 2,304.52, while the Philippine composite index ended 0.2 percent lower at 2,749.77. Taiwan's weighted index closed up 0.32 percent at 8,919.92.

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Metals - Gold lower ahead of Fed interest rates decision

LONDON - Gold was lower midafternoon as investors stuck to the sidelines ahead of this evening's rate announcement from the U.S Federal Reserve, with buying interest muted amid expectations the dollar is set to firm.

At 3.08 p.m., spot gold was down at $870.75 per ounce against $874.80 in late New York trade on Tuesday.

Profit taking and a firmer dollar sent the precious metal to an intra-day low of $861.95 midmorning as traders bet on the Fed signalling an end to its current rate-cutting cycle in the statement that will accompany its announcement on interest rates later today.

A pause in rate cuts should support the dollar, pressuring gold. The precious metal typically trades in an inverse relationship to the greenback, to which it is often bought as an alternative investment.

A recovery in the dollar this month amid hopes the worst of the credit crisis may be over and as euro zone data came in weak is already pressuring the precious metal.

"Fresh three-month lows of just above $860 were set in bullion prices overnight as decent physical offtake was negated by long liquidation ahead of today's Fed rate decision," said Kitco Bullion Dealers analyst Jon Nadler.

"A combination of weak euro zone sentiment and a greenback gunning for -- and hit(ting) -- the 73 mark on the index sent the euro to a four-week low near 1.553 against the dollar." "Gold, which started the month with a bad April Fool's $33 decline from $915 to $882, will close out this stormy month with a net loss," he added.

Gold prices rallied to a new all-time high of £1,032.50 an ounce in March as the dollar wilted and oil prices soared. Gold is often bought as a hedge against oil-led inflation.

However, the precious metal slipped from that peak despite continued dollar weakness and oil strength, with some analysts claiming rising risk appetite was sending investors back to the equity markets.

Oil's softening from its all-time highs and a firming in the dollar over the last week have further pressured the metal.

"With the euro softer, and crude oil softer, the underlying supports for gold have evaporated quickly, and gold is down below $870/oz," said JP Morgan analyst Michael Jansen.

"We continue to believe that gold has further to retrace, back towards the $850/oz area in the first instance but potentially back towards the $800/oz area. This reflects wider macro drivers which are now less supportive -- rising US interest rates and a moderation in the US dollar downdraft, but more importantly a realization that the traditional buyers of gold - jewellers - have been left far below the market," he added.

Among other precious metals, platinum was steady at $1,925 against $1,930, while palladium was trading at $416 against $427. Silver meanwhile edged up to $16.68 an ounce from $16.53.

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