US & World Daily Markets Financial Briefing 30-06-2008

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US Chicago June purchasers index rises to 49.6 vs 48.0 expected

WASHINGTON - Business activity in the US midwest increased unexpectedly in June, but remained in contraction territory for the fifth straight month. The National Association of Purchasing Management-Chicago business index rose to 49.6, up from the 49.1 reading in May.

Economists polled by Thomson's IFR Markets were forecasting a drop to 48.0. A reading above 50 signals expansion, and a reading below 50 is a sign of business contraction.

The Chicago purchasers group also said the prices paid index fell to 85.5 in June from 87.5, while the new orders index fell to 52.0 from 56.1.

Shares of Google Inc. rallied in premarket trading Monday after Citigroup said it made the search giant's stock its top pick in the Internet sector.
   
Analyst Mark Mahaney said his research indicates that Google is "on track" to meet his second-quarter estimates for earnings of $4.73 a share on revenue of $3.82 billion. The mean estimates of analysts surveyed by Thomson Reuters are for earnings of $4.72 a share on revenue of $3.86 billion.
   
Mahaney said he believes $500 as "reasonable trough" for Google's stock, so the downside risk is outweighed by the upside potential to his $630 price target.
   
The stock was up $4.03, or 0.8%, at $532.10 ahead of the open. As of Friday's close of $528.07, the stock had lost 9.2% since the end of May.

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Euro steady after brief surge on record inflation figures

LONDON  - The euro was steady at lower levels having succumbed to a bout of profit taking after an early spike this morning following a record rise in euro zone inflation.

To some extent, the day's U.S. data also helped keep the euro from rising back too far. The Chicago-area PMI business barometer improved half a point to 49.6 in June, confounding expectations of about a one-point decline.

Still, the key piece of news for the day came in the morning, with the euro zone harmonised index of consumer prices reaching a record high of 4.0 percent in June, beating analyst expectations for 3.9 percent.

The news cemented expectations the European Central Bank will raise interest rates on Thursday, with speculation mounting that it will be followed by another hike in the coming months.

At the same time, concerns about rising inflation -- with oil hitting another record high -- also played a major part in the proceedings on the currency market.

Against this backdrop it was hard to bet against the euro, even though some profit taking was seen today. And, despite today's sideways movement experienced by the euro, its uptrend remains intact.

"The latest record in euro zone inflation at 4.0 percent annually in June is the latest catalyst to the broadening euro strength and continued dollar weakness," said Ashraf Laidi at CMC Markets.

"In a week when the European Central Bank is expected to raise rates at the same day that US jobs figures are set to show prolonged weakness, dollar weakness remains the order of the day," he added.

Elsewhere the pound was under pressure after figures from the Bank of England show activity in the housing market has been slowing rapidly.

The BoE said the number of mortgages approved during May was just 42,000, the lowest number since records begin in 1999 and well below the six-month average of 70,000.

The news followed a survey released earlier in the morning showing UK consumer confidence is at its lowest level since 1990, when the economy was in the grip of a recession.

GfK NOP's monthly consumer confidence barometer fell sharply to -34 in June from -29 in May, as fears of an economic slowdown alongside rising inflation took their toll.

UBS analyst Amit Kara said the gloomy data is undermining expectations that UK interest rates will rise in the coming months.

"From a policy perspective, today's weak data adds ammunition to the 'no rate hike' debate, and as such we expect the Bank Rate to stay on hold for the next few months unless labour earnings respond to high inflation," he said.

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Euroshares open lower after Wall Street slump; banks slide, oils gains

At 8:55 a.m., the DJ STOXX 50 was down 35.06 points, or 1.21 percent, at 2,853.82 and the DJ STOXX 600 was down 4.06 points, or 1.41 percent, at 284.42.

Oil futures shot past $140 for the first time after the head of OPEC predicted the price of a barrel of crude could rise well over $150 this year and Libya said it may cut oil production.

In Europe, the banking sector continued Thursday's decline as economic fears and concerns over possible further write-downs in the U.S. continued to weigh.

An article in the UK's Telegraph relayed a warning from Barclays research department that its clients are "to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall 'below zero'".

The DJ STOXX EUR Banks lost 1.89 percent, with Barclays 1.9 percent lower, Deutsche Bank down 1.5 percent, Unicredit easing 2.4 percent, BNP Paribas sliding 1.1 percent, and UBS losing 1.7 percent.

Fortis bucked the sector trend, however, to top the DJ STOXX 50 risers, up 3.6 percent as investors bought back into the stock on weakness following Thursday's 19 percent drop when the Belgo-Dutch bancassurance group announced an 8 billion euro recapitalisation package.

Fortis said last night that it has completed a scheduled 1.5 billion euro capital hike, placing 150 million new shares at a price of 10.0 euros each.

Also in demand were oil & gas heavyweights on the back of oil price strength, with the DJ STOXX EUR Oil & Gas sector up 0.86 percent, with Total up 1.8 percent, Repsol YPF 0.7 percent ahead, BP 2.2 percent firmer, Cairn Energy jumping 6.4 percent, and ENI adding 1.2 percent.

Several index plays were also helped by a JP Morgan review of the European integrated oils sector, in which the broker raised its earnings estimates by 17 percent and price targets by 7 percent on average across the sector.The broker said BP remains the most attractive of its top picks, while it also upgraded StatoilHydro to 'overweight' from 'neutral'. Cairn, meanwhile, was upgraded to 'outperform' from 'in-line' at Cazenove.

Sticking with commodities, steel producer ArcelorMittal outperformed, sliding just 0.2 percent after announcing it is raising flat carbon steel prices in Europe for new bookings with delivery scheduled for September, and signalling further price hikes going forward amid a tight supply.

Returning to the downside, Carrefour added to Thursday's heavy 8.8 percent loss as more brokers downgraded the stock Friday after the supermarket giant last night lowered its guidance for full year operating profit from continuing activities. The company is predicting an increase in line with the rise in sales, no longer forecasting that growth will outstrip the gain in sales.

Deutsche Bank downgraded Carrefour to 'hold' from 'buy' and lowered its target to 45 euros, while Natixis Securities cut its recommendation to 'reduce' from 'accumulate' and lowered its target to 37 euros from 49. Carrefour shares lost a further 7.3 percent Friday morning.

Nestle also suffered at the hands of a broker downgrade, falling 0.3 percent after SG Securities downgraded its advice to 'sell' from 'buy' and cut its price target by 25 percent to 427 Swiss francs. Nokia dropped 2.9 percent after Credit Suisse downgraded its stance to 'neutral' from 'outperform'.

The broker told clients it has reduced its EPS estimates for Nokia by 12 percent to 1.59 euros for 2008 and by 21 percent to 1.50 euros for 2009, leading it to also cut its fair value to 18.5 euros from 30.0 previously.

Although the stock is cheap, the broker said, it does not see significant upside potential. Among M&A moves, EADS shares dipped 2.0 percent lower following a report that Lagardere has reduced its stake in the aerospace and defence group to less than 10 percent, according to Le Figaro. Arnaud Lagardere yesterday told the group's top management that he still intends to exit from the EADS stake completely, but not at the current share price.

Finally, also in France, shares in Clarins remained suspended at the company's request, with La Tribune's website reporting this morning that the Courtin-Clarins family, who own 64.9 percent of Clarins, want to buy the minority shareholders' stake in the cosmetics group in order to delist it from the stock exchange.

The operation would cost Clarins up to 641 million euros, including a premium of 15-20 percent above the latest share price, the website said, without citing a source.

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Asian markets turn lower amid inflation worries

SINGAPORE - Asian markets gave up early gains to trade mostly lower on Monday afternoon on renewed concerns about inflation after oil prices rose to a fresh record near $143 a barrel on Friday.

Oil prices retreated from record levels but were still trading above $141 a barrel in Asian hours on Monday, bolstered by a weak dollar and continuing tension between Israel and Iran over Tehran's nuclear programme.

"The most acute problem now for the global economy and the stock market are oil prices and inflation. The turning point will be the interest rate decision by the European Central Bank this week," said Kim Se-jung, an analyst at Shinyoung Securities in Seoul.

The South Korean KOSPI index closed lower by 0.6 percent at 1,674.92. In Australia, the S&P/ASX index shed 0.4 percent at 5,213.1, off a high of 5,305.9.The index fell 16.9 percent in the year to June 30, its worst financial year since 1982 when the then-benchmark index fell 32.4 percent, according to Oliver.

Analysts said the Australian market is on track to post its worst financial year performance in 26 years and is expected to struggle in the months ahead as investors fret about the impact of record oil prices on company profits and global growth. "High oil prices are really cramping sentiment in a market that is fear-driven. The likelihood of sustained high prices will have an impact on earnings," said Savanth Sebastian, equities economist at CommSec.

The Japanese market also reversed early gains, with the Nikkei 225 index down 0.5 percent at 13,472.75."Investors appear hesitant to open fresh positions due to mixed cues and while U.S. stocks tumbled, the downside is supported by expectations for the establishment of mutual funds today and firm interest in Japanese stocks by foreign investors," said  Mitsushige Akino, chief fund manger at Ichiyoshi Management in Tokyo.

In Hong Kong, the Hang Seng was down 0.3 percent at 22,102.01. "Even though end-quarter window-dressing activity may help boost the market on the last trading day of the first half, the local market will inevitably end June on a downbeat note," said Wilson Wong, analyst at Tai Fook in Hong Kong.

Elsewhere, the Kuala Lumpur Composite Index closed 0.3 percent lower at 1,186.57, while the Philippine Composite Index  was off 0.3 percent at 2,459.98.

The Shanghai Composite Index closed 0.45 percent down at 2,736.10, while the Taiwan weighted index eased 0.3 pesingrcent to 7,523.54.The Singapore Straits Times index was up 0.3 percent at 2,947.54, off a high 2,986.53, while the Jakarta Composite index gained 0.7 percent to close at 2,349.11.

India's main stock index, the Sensex of the Bombay Stock Exchange, closed down 340.62 points, or 2.47 percent, at 13,461.60 points and the S&P CNX Nifty of the National Stock Exchange closed down 96.10 points, or 2.32 percent, at 4,040.55 points.

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Oil-service ETF climbs to record high as crude tops $143-a-barrel mark

NEW YORK - Oil-service stocks shot higher Monday with crude-oil futures hitting another intra-day record amid continued worries over supply disruptions and tensions in the Middle East. The Oil Services Holdrs ETF (OIH) traded up 1.6% at $224.13. The fund touched an all-time high of $224.79 earlier in the session and has rallied nearly 19% since the beginning of the year.

Crude for August delivery touched a record of $143.67 a barrel before retreating to trade up $1.31, or 0.9%, at $141.52 a barrel on the New York Mercantile Exchange.

Mark Urness, an analyst at Calyon Securities, said he expects oil service and drilling stocks will continue to outperform the broader market by "a wide margin. "We continue to believe that the current upcycle, now in its sixth year, will be the strongest and longest since the 1970's," he wrote to clients.

Industry fundamentals remain "very strong" boosted by soaring oil and natural gas prices, he said. Urness expects the industry's exploration and production spending will continue to grow at double-digit rates through the end of the decade because of ongoing need to offset rapid depletion and increase supply to meet growing demand.

Urness said his top picks include Halliburton Co., which has solid exposure to the rapidly growing market for stimulation services, and Transocean Inc., which is a leading deepwater driller. He also favors Cameron International Corp. because of its exposure to the rapidly growing subsea market.

In Monday's trading, shares of Halliburton rallied 3.3% to $53.86, while Transocean added 1% to $154.01, and Cameron International gained 2% to $56.

Elsewhere, shares of Baker Hughes Inc. rose 2% to $89.49 and Schlumberger Ltd. tacked on 2% to $108.05. BJ Services Co. rose 1.1% to $32.47 and Rowan Cos. Inc. advanced 2.5% to $47.53. Smith International Inc. tacked on 2.3% to $81.62.

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