US & World Daily Markets Financial Briefing 30-05-2008

Stocks rise after personal spending data

NEW YORK  - Wall Street moved modestly higher Friday after two technology companies posted strong results and government data indicated Americans' spending rose in April -- but only to keep up with rising costs.

After three straight days of gains, the stock market edged higher after the Commerce Department said personal spending rose 0.2 percent last month and personal income rose 0.2 percent. The department also said inflation at the personal spending level, after stripping out food and energy costs, ticked up in April by a tame 0.1 percent.

The readings were in line with the market's expectations, and supported the notion that high commodities costs are not yet causing a sharp pullback in spending or lifting prices for other goods. Meanwhile, computer maker Dell Inc. and chip maker Marvell Technology Group posted stronger-than-expected quarterly results.

But Wall Street's concerns about the economy and inflation are far from erased. Americans still face rising costs for necessities such as groceries and gasoline, and crude oil remains near record highs. And after accounting for inflation, personal spending and incomes in April were flat, according to the Commerce Department report.

In mid-morning trading, the Dow Jones industrial average rose 30.37, or 0.24 percent, to 12,676.59. Broader stock indicators moved higher. The Standard & Poor's 500 index rose 4.50, or 0.32 percent, to 1,402.76, and the Nasdaq composite index rose 15.08, or 0.60 percent, to 2,523.40.

Government bonds rose after the tame spending and inflation data. The yield on the 10-year Treasury note, which moves opposite its price, fell to 4.05 percent from 4.08 percent.

The technology-dominated Nasdaq got a boost after Dell, the world's second-largest seller of personal computers, issued a profit report late Thursday that was stronger than analysts expected due to growth in Asia and robust sales of notebook computers.

Dell shares jumped $1.63, or 7.5 percent, to $23.44, and injected some optimism into Wall Street that foreign economies are helping many companies weather the weak U.S. market.

Marvell Technology swung to a larger-than-expected profit in the quarter ended May 3, and its revenue also beat analyst forecasts. Marvell shares rose $3.25, or 23.1 percent, to $17.33.

But the energy markets continued to weigh on investors' minds, with oil prices down but still hovering near record levels. After a $4-a-barrel tumble in oil helped stocks advance Thursday, crude oil futures slipped 38 cents to $126.24 a barrel in erratic trading on the New York Mercantile Exchange.

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

In other economic data, the Chicago Purchasing Managers' report on Midwestern manufacturing indicated that May activity contracted at a slower pace than in April, while the University of Michigan posted a dip in May consumer sentiment.

The Russell 2000 index of smaller companies rose 0.36, or 0.05 percent, to 745.91. Declining issues narrowly outnumbered advancing issues on the New York Stock Exchange, where volume came to 276.3 million shares.

In afternoon trading, Britain's FTSE 100 rose 0.57 percent, Germany's DAX index advanced 0.82 percent, and France's CAC-40 rose 0.77 percent.

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Euro finds support from resurging inflationary pressures

LONDON - The euro got off to a weak start but found a modest boost to rise back above $1.55 after news that area-wide inflation saw a resurgence in May.
   
Euro zone inflation jumped to a provisional 3.6 percent in May from 3.3 percent last month, once again reaching its highest level since the launch of the euro. Inflation also hit 3.6 percent in March.
   
A re-acceleration in euro zone inflation in May and the prospect of further rises in the months ahead will prevent the European Central Bank from cutting interest rates from their current 4.00 percent level until much later in the year.
   
And with oil prices surging, inflation is predicted to rise further over coming months. "Inflation will become an even greater concern over the coming months, since the relentless rise in oil and food prices is likely to push it up to 4 percent this summer (see chart)," said Christoph Weil of Commerzbank.
   
And inflation is now unlikely to retreat below 3 percent until next spring, fuelling ECB worries about knock-on effects on wages and domestic prices. The ECB aims to keep inflation below 2 percent in the medium term. "The recent deterioration of oil price prospects, and as a consequence, the deterioration of the prospects for inflation, that makes less probable the scenario of inflation falling under 3 percent before year end, has significantly increased the risk of the ECB maintaining rates at 4.00 percent for the foreseeable future," said David Martin Heredero of Grupo Santander.
   
Against this backdrop, it is hard to take too many bets against the euro. Earlier though, the single currency was somewhat weaker after a decline in German retail sales figures.
   
German retail sales fell 1.7 percent in April from March, significantly worse than the 0.8 percent decrease economists were forecasting.    

The dollar, meanwhile, will also face a string of economic releases before the weekend -- the PCE deflator, an inflation measure, is expected to moderate to 0.1 percent in April from 0.2 percent in March, while the Chicago PMI is forecast to have increased to 48.5 in May from 48.3 in the previous month.

Finally, the second release of the University of Michigan consumer confidence indicator is expected to remain unchanged at the very weak level of 59.5. Despite the generally soft tone expected of the data, Maher at Calyon expects the dollar to not fall too much as U.S. interest rate markets have plenty of momentum in pricing in Fed rate hikes at the end of the year, thereby supporting the dollar.
   
In the UK, the pound held steady despite more evidence of weak economic data, this time about household optimism. The GfK/NOP survey revealed that its consumer confidence index slumped five points in May to -29, its lowest level since November 1990 and beyond expectations for a -25 reading.
   
Consumers are facing bad news on almost every front -- higher living costs, lower house prices, rising unemployment, and expectations that price pressures will not allow the Bank of England to cut interest rates aggressively. The data comes a day after Nationwide revealed yet another sharp fall in house prices and further boosts views that the UK economy is entering a period of stagflation -- anaemic growth accompanied by flaring inflation.

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Euroshares higher midday as Wall St set for gains; oils track crude lower

LONDON - Europe's largest exchanges remained higher midday as Wall Street looks set for further gains as oil continued to lose ground, although losses by heavyweight oil plays and miners are limiting gains.

At 12:25 a.m., the DJ STOXX 50 was up 9.16 points, or 0.29 percent, at 3188.08 and the DJ STOXX was up 1.24 points, or 0.39 percent higher, at 322.15.

Back in Europe, Total fell 1.82 percent, Repsol fell back 0.86 percent and ENI was 1.11 percent lower as oil ticked lower again in Asian trade, having fallen $4.41 to close at $126.62 on the New York Mercantile Exchange on Thursday.

BG Group fell back 3.17 percent as Australia's Origin refused the UK group's raised offer. Origin said the deal under-valued its assets, raising fears that BG might have to lift its offer further if it doesn't want to give up on its prey.

However shares in Awilco Offshore ASA jumped 24.12 percent in midday trade after it confirmed it has received an expression of interest from an unnamed third party. Shares were also lifted by news earlier that SEB Enskilda has lifted its rating on the shares to 'buy' from 'hold'.

Among financials, Deutsche Bank was down 5.64 percent as it trades ex-dividend Friday. The group is paying a 4.5 euros per share dividend.

But banking and other financial stocks were mostly recovering, tracking global markets higher. Unicredit added 2.71 percent, Societe Generale was 2.01 percent higher and ING shares added 1.63 percent.

Merrill president Gregory Fleming has said the pace of bank mergers will accelerate within next six months. Alliance & Leicester and Bradford & Bingley, both seen as likely takeover targets, added 4.22 percent and 1.38 percent respectively.

Meanwhile, Santander SA's UK mortgage lender Abbey plans to increase its offensive in the mortgage business in the country, to take advantage of the difficult situation facing many of its rivals, Abbey CEO Antonio Horta Osorio said in an interview with Expansion.

Airlines and car groups got a boost from as oil prices continued to fall with WTI nearing $125 per barrel at 125.85, having fallen more than $4 in U.S. trade Thursday. Renault motored 2.2 percent higher, Air France-KLM up 6.79 percent and Iberia was up 1.42 percent after recent losses.

Germany's solar energy stocks rose after the German government reportedly agreed a smaller than feared reduction in subsidies to the sector.

Shares in Q-Cells AG. were up 6.07 percent while Phoenix Solar shares gained 8.44 percent and Solarworld added 8.53 percent. Citigroup said both Q-cells and Solarworld look well placed to handle the tariff reduction and reiterated 'buy' ratings on the pair.

Distrigaz climbed 6.76 percent as it resumed trade after news late yesterday that Enel is to pay 2.7 billion euros for Suez's 57 percent stake in the Belgium's group.

Telecom Italia shares moved up 2.07 percent after the group's upbeat performance at an Italian conference yesterday as the group suggested price competition is slowing.

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Asian stocks higher after Wall Street gains on drop in oil prices

Asian stocks rose on Friday, with the Nikkei index hitting a five-month high after Wall Street stretched its rally for the third straight session following a drop in oil prices and an upward revision to first-quarter data on U.S. economic growth.

In Japan, the Nikkei closed up 1.5 percent at 14,338.54 while the broader Topix rose 2.0 percent to 1,408.14, with exporters buoyed by a weaker yen.

Exporters also rallied in South Korea on hopes a weaker won and brisk overseas sales would boost quarterly earnings. The Kospi closed up 0.6 percent at 1,852.02.

Consumer electronics giant Sony rallied 3.9 percent to 5,280 yen, while major office equipment manufacturer Canon rose 2.7 percent to 5,690 yen. Honda surged 5.1 percent to 3,530 yen and Toyota Motor advanced 3.5 percent to 5,370 yen. Samsung Electronics rose 1.5 percent to 745,000 won.

But not everyone was optimistic about the prospects of the U.S. economy despite faster-than-estimated first-quarter growth. Taiwan's Taiex lost 0.8 percent to 8,619.08. Share prices on the Taipei bourse settled lower in volatile trade as concerns over inflation prompted investors to take profit. U.S. focus

"People are still not buying shares as the U.S. economy is still in the doldrums. They may have revised the GDP figures but growth is still under 1 percent," said Francis Lun, general manager at Fulbright Securities.

Gains in Hong Kong were capped by lower investor participation as several market players stayed on the sidelines amid losses on the mainland markets and uncertainty about the direction of the global economy. Hong Kong's Hang Seng index closed up 0.61 percent at 24,533.12.

The Shanghai Composite edged up 0.9 percent to 3,433.35.

In Sydney, the S&P/ASX 200 was down 1.0 percent at 5,654.7 while the All Ordinaries index was off 0.7 percent at 5,773.9.

"Oil stocks tumbled today in response to oil price falls overnight, and we saw investors moving their attention to gas (stocks)," said Dominic Vaughan, senior dealer at CMC Markets.

Origin Energy grabbed the spotlight after rejecting a sweetened A$13.6 billion ($13 billion) takeover offer from U.K. energy giant BG Group, pitched at A$15.50 a share. This price represents a hefty 48 percent premium to the share price of A$10.47 a day before BG made an initial offer of A$14.70 a share on April 30. Origin closed up 6.9 percent at a record A$15.69, as investors re-rated the stock after Origin's board said the company's coal seam gas assets alone were worth more than BG was offering for the entire group. Index leader BHP closed down 5.5 percent at A$43.50 and Rio Tinto lost 4.4 percent to A$138.00.

Singapore's Straits Times Index closed 1 percent higher at 3,192.62, while Malaysia's KLCI rose 1.2 percent to 8,224.30.

The Philippine Composite closed 0.9 percent higher at 2,827.44, while the Jakarta Composite ended down 0.1 percent at 2,444.35.

Indian shares closed slightly higher on select blue-chip buying, after data which showed the economy registered more-than-expected annual growth, while inflation shows no signs of cooling off.

The widely watched benchmark of the Bombay Stock Exchange (BSE), the 30-share Sensex, ended 99.31 points or 0.61 percent higher at 16,415.57. The National Stock Exchange's S&P CNX Nifty ended 34.80 points or 0.72 percent up at 4,870.10.
   
The Sensex has shed 5.04 percent during the month, after ending April at 17,287.31.  A cheerful opening gave way to choppy trade, with the Sensex ending nearly 125 points off the day's high.

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Copper, aluminium supported by fundamentals

LONDON - Copper and aluminium prices edged up on Friday as worries about supply shortfalls resurfaced, while tin fell sharply to a two-month low.

Metals prices slipped on Thursday after LME-registered warehouse figures showed most stocks had risen.

However copper could see some support by the threat of a nationwide strike in Peru and industrial action in Mexico, where workers held a one-day strike earlier this week.

Subcontract workers at the world's largest copper miner, Codelco, are unhappy with a recent court ruling that overturned part of an agreement that ended a long-running dispute.

LME lead Zinc gained $11 $1,991 while nickel was up $45 at $22,250/22,450.

Oil climbed back above $127 a barrel on Friday, recovering from earlier losses triggered by a U.S. regulatory probe.

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