US & World Daily Markets Financial Briefing 31-03-2008

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Stocks fluctuate on quarter's final day

NEW YORK - Stocks fluctuated within a narrow range Monday after a reading on regional manufacturing came in better than expected and as investors examined details of a government plan to overhaul the way Wall Street is regulated.

The Chicago Purchasing Managers Index, considered a precursor to the National Institute for Supply Management manufacturing survey on Tuesday, rose to 48.2 in March from 44.5 a month earlier. Economists had been expecting a reading of 47.3, according to Dow Jones Newswires. A figure below 50 indicates a contraction in manufacturing activity.

The manufacturing snapshot comes as many institutional investors have closed their books for the first quarter, which ends Monday. Investors appeared to be making few big moves. It has been a dismal quarter on Wall Street, with financial companies' continuing credit market losses and the flagging economy wiping out investors' appetite for stocks. While the market has seen a number of up days during the quarter, overall the first-quarter trend was sharply lower.

Wall Street appeared unmoved by a speech from Treasury Secretary Henry Paulson on the plan to reorganize oversight of Wall Street; details of the 218-page plan have been widely reported in recent days. It would give the Federal Reserve increased power to protect the stability of the entire financial system while merging day-to-day supervision of banks into one agency, down from five under the existing system.

In midmorning trading, the Dow Jones industrial average fell 12.04, or 0.10 percent, to 12,204.36. Broader stock indicators rose. The Standard & Poor's 500 index rose 2.74, or 0.21 percent, to 1,317.96, and the Nasdaq composite index rose 7.50, or 0.33 percent, to 2,268.68.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.41 percent from 3.45 percent late Friday. The dollar was mixed against other major currencies, while gold prices rose. Light, sweet crude rose 63 cents to $106.25 on the New York Mercantile Exchange.

In corporate news, Merck & Co. fell $6.82, or 15 percent, to $37.69 and Schering-Plough Inc. declined $4.98, or 26 percent, to $14.49 after medical researchers said the companies' joint anti-cholesterol drug, Vytorin, failed to improve heart disease. The researchers' findings, published on the Internet by the New England Journal of Medicine, urged a return to more established treatments for cholesterol.

Citigroup Inc. plans to split its consumer banking unit from its credit card business as part of a broader reorganization to cut costs and simplify the large financial institution's structure. The company suffered billions of dollars in losses from investments in poor-quality mortgages. Citi rose 3 cents to $20.86.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 212.9 million shares.

The Russell 2000 index of smaller companies rose 2.45, or 0.36 percent, to $685.63. Overseas, Japan's Nikkei stock average fell 2.30 percent. In afternoon trading, Britain's FTSE 100 fell 0.08 percent, Germany's DAX index fell 0.59 percent, and France's CAC-40 rose 0.01 percent.

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Forex - Euro stays near all-time highs vs dollar, pound on inflation data

LONDON - The euro remained firm at near-record levels against the pound and dollar, after figures showed inflation in the 15-nation single currency zone rose further above target in March.

News of an above-inflation pay deal for German public-sector workers appeared to help the euro higher as the afternoon wore on, with the European Central Bank known to be wary of letting wage inflation get out of hand. "No doubt the unions will be happy but it remains to be seen how the inflation-sensitive ECB takes the news," said Peter Stoneham at Thomson's IFR Markets, noting the pay rise is the biggest in 16 years.

Indeed, March inflation data earlier in the day will have been of significant concern for the central bank. The euro zone harmonised index of consumer prices rose a provisional 3.5 percent year-on-year in March compared with a year-on-year rise of 3.3 percent in February, EU statistics office Eurostat said.

The European Central Bank's (ECB) target is for annual inflation to be at 2 percent and figures such as these are likely to further undermine the chances it will cut interest rates in the coming months as it battles to bring inflation under control.

"The increasing hawkishness of the ECB suggests that these strong inflation numbers (highest since the early 1990's) will keep the euro supported," said BNP Paribas analysts. "We expect euro/dollar to break higher from the narrow consolidation range developed in recent days, opening upside potential to the $1.60 area over the coming week," they added.

While rates in the euro zone look set to stay on hold for some time, the same cannot be said for the United States and the United Kingdom. The dollar and the pound have both fallen consistently against the euro as their yield differential with the single currency worsens, with more weakness looking likely.

"Another day passes and another valid reason for the euro to test near its $1.59 record high and hit a fresh record at against the pound at 79.70 pence," said Ashraf Laidi, currency analyst at CMC Markets. The pound was under particularly strong pressure today, as strong euro zone inflation data coincided with soft indicators out of the United Kingdom.

The latest house price survey from Hometrack reported that United Kingdom house prices fell in March for the sixth consecutive month while a report from the Confederation of British Industry said profits in the UK's financial services sector are falling at their fastest rate since the start of the war in Iraq five years ago. Furthermore, official figures showed the services sector, which accounts for three-quarters of the United Kingdom economy, grew at its slowest pace in more than two years in the three months to January.

The weak data are adding to speculation that the Bank of England will cut interest rates next week, although the BoE is seen as unlikely to follow the Federal Reserve into a more aggressive easing policy. Mervyn King, governor of the Bank of England, said this morning that rate-setters cannot ignore the current rise in the inflation rate.

The dollar was trading in a narrow range, near its record lows against the euro, after the Chicago purchasers' index for March came in above expectations but nonetheless indicated contraction. This is a key week United States data, with non-farm payrolls out Friday and the closely watched ISM surveys due on Tuesday and Thursday. All are expected to fuel recession fears, with payrolls forecast to show 50,000 jobs were shed during March.

However the main event of the week is likely to be Federal Reserve chairman Ben Bernanke's testimony before the Congress Joint Economic Committee on Wednesday who will face questions over the central bank's handling of the Bear Stearns collapse and the latest 50 basis point interest rate cut.

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Euroshares open lower following overseas losses, UBS falls 3 pct 

At 9:00 a.m., the DJ STOXX 50 was 50.06 points or 1.65 percent lower at 2,980.04, while the DJ STOXX 600 fell 4.57 points or 1.49 percent to 302.12.

World oil prices dropped below $105 per barrel in Asian trading amid continuing concerns that energy demand would be affected by a slowing United States economy.

Back in Europe, financial stocks remain in focus amid reports of potential dividend cuts at U.S. institutions and news Lehman Brothers Inc. is set to file a lawsuit today against Japanese trading house Marubeni Corp., which reportedly swindled the investment bank out of about 350 million dollars.

Meanwhile, UBS AG fell 3.45 percent on the back of a report in Sonntag that the Swiss bank may be looking for a capital increase.

Banco Popolare Scarl was down 4.37 percent after the banking group reported full year pro-forma net profit fell to 732 million euros from 975 million a year earlier due to higher write-downs, including on its Banca Italease stake, and integration costs, which more than offset higher capital gains.

The uncertainty in the sector dragged Deutsche Boerse down 2.78 percent, Societe Generale down 2.34 percent and Unicredit down 2.16 percent.

Over in France, Pernod Ricard fell 1.41 percent as analysts said it has paid too high a price for Sweden's largest producer of alcohol, Vin Spirit. "The price tag of 8.9 billion dollars is significantly higher than consensus expectations of 6-7 billion, but the ability to fully debt finance the deal is likely to come as a positive surprise," said Merrill Lynch.

Shares in Valeo S.A. moved 2.16 percent higher in opening deals, as a report that India's Hinduja Group is seeking a majority stake in the French auto parts maker reignited takeover speculation around the stock.

Shares in Siemens AG were 1.97 percent lower after a report in Frankfurt Allgemeine Zeitung said the company may face a huge loss due to delays in completing a power plant it is building in Olkiluoto, Finland.

The loss could run up to 500 million euros, the newspaper said, citing an analyst. Turning to earnings news, Spain's Inditex SA fell back 2.19 percent as analysts said the numbers were mixed and said uncertainty remains about the effect of this yera's early Easter and the short February month.

Airlines were a key focus among broker recommendations as Goldman Sachs downgraded British Airways, down 3.75 percent, to 'sell' from 'buy' mainly due to the increase in the oil price.

The broker also cut SAS, down 2.29 percent, and Austrian Airlines, down 0.61 percent, to 'neutral' form 'buy. But the broker upgraded Lufthansa to 'neutral' from 'sell'. Shares were down 0.53 percent. The broker also removed Ryanair from the 'Conviction Buy List'.

And Credit Suisse initiated coverage of easyJet with an 'outperform' rating and 445 pence price target and Ryanair with a 'neutral' rating and 2.8 euros target. Ryanair shares fell 1.07 percent, while easyjet shares were up 1.45 percent.

Michael Page fell 1.52 percent after shares were downgraded to 'sell' from 'hold' at Deutsche Bank, while shares in Randstad, which has been upgraded to 'buy' from 'hold', added 0.17 per cent Vedior shares were unchanged as SNS Securities downgraded its view to 'hold' from 'accumulate'

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Asian stocks fall with Wall Street as weak data revives recession fears

The Kospi closed 0.1 percent higher at 1,703.99, reversing earlier losses, after a rally among chipmakers on hopes of rising chip prices offset declines triggered by downbeat economic data.

The Nikkei closed down by 2.3 percent at 12,525.54 and topix index declined 2.5 percent to 1,212.96. Japan's better-than-expected industrial production data for February, released before the opening bell, provided little support to the market.

The government said Japan's industrial production fell a seasonally adjusted 1.2 percent in February from January, smaller than the 2.2 percent decline forecast by economists in a Thomson/IFR Markets poll.

"Investors were unimpressed by the results as while the February declines were smaller, prospects for the forthcoming months are not strong enough," said Yumi Nishimura, manager for equity marketing at Daiwa Securities SMBC.

The S&P/ASX 200 all Ordinaries index closed up 0.1 percent at 5,355.7, while the All Ordinaries index added 0.2 percent to close at 5,409.7.

Chinese indices were lower with the Shanghai composite index down 3 pct at 3,472.71 and Hong Kong's Hang Seng index 1.88 pct lower at 22,849.20.

In Sydney, ANZ fell 2.7 percent to A$22.55, Commonwealth Bank of Australia was down 90 cents or 2.1 percent at A$41.81 and Westpac was down 15 cents or 0.6 percent at A$23.75.

In South Korea, Kookmin Bank fell 0.9 percent to 55,400 won as investors were disappointed at the bank's bid to take a controlling stake in Bank International Indonesia.

Big banks were also weaker in Tokyo with Mizuho Financial Group down 5.4 percent at 365,000 yen, Mitsubishi UFJ Financial Group down 2.9 percent at 860 yen and Sumitomo Mitsui Financial Group down 4.2 percent at 656,000 yen.

Elsewhere in the region, the Philippine composite index closed up 1 percent at 2,984.67. In Malaysia, the Kuala Lumpur composite was closed higher 0.9 percent at 1,247.52. The Singapore Straits index closed down 0.8 percent at 3,007.36. The Indonesian composite index closed 1.2 percent lower at 2,447.30.

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Metals - Copper edges higher as LME stockpiles continue to decline

LONDON - Copped edged higher in early London trade as a further large decline in stockpiles of the red metal increased the sense of market tightness.

Copper stockpiles monitored by the London Metals Exchange (LME) declined by a further 2,750 tonnes to stand at 112,500 tonnes, heightening supply tightness fears following an 18 percent drop in Shanghai inventories last week. Copper stocks at the Shanghai Futures Exchange (SHFE) fell by 12,217 tonnes to 55,607 tonnes in the week to March 28.

"As this month comes to an end it has been reported that copper in Shanghai has had it best quarter since 2006," said Alex Heath at RBC Capital Markets. "Investors have been buying commodities as an alternative to declining global equities and the falling U.S. dollar and this has led to prices rallying 14 percent this quarter."

At 10.38 am BST, LME copper for three-month delivery was up at $8,465 usd per tonne against $8,405 usd at the close on Friday.

Copper prices gained around 6 percent in London over the course of last week. Gains were helped by reports from the International Copper Study Group which said the world refined copper market was in a 40,000 tonne deficit in 2007, from a surplus of 290,000 tons in 2006.

Prices across the exchange have also been supported by further weakness in the U.S. dollar, which makes commodities denominated in the American currency cheaper for overseas investors.

Investment funds have also been buying into commodities to help hedge against dollar weakness and the recent widespread financial turmoil.

While some short-term demand concerns have been raised as the U.S. economy teeters on the brink of recession, booming demand from developing countries such and India and China is helping to support prices.

"The economic transformation of the larger emerging countries is making world economic growth more and more commodity-intensive, while supply is facing difficulties in keeping up for a range of geological, geopolitical and technical reasons," said analysts at Societe Generale.

In other metals traded on the LME, lead for delivery in three months was unchanged at $2,860 a tonne, aluminium crept up to $3,021 a tonne against $3,015, while zinc was up to $2,369.75 a tonne against $2,350 at the close on Friday.

Three-month nickel dipped to $30,200 per tonne from $30,500 with tin following it lower to $20,550 per tonne against $20,600.

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