US & World Daily Markets Financial Briefing 31-07-2008

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Stocks mostly decline on GDP, jobless reports

NEW YORK - Stocks mostly retreated Thursday after a weaker-than-expected reading on the nation's economic output and a surprise jump in weekly unemployment claims stirred concern about the health of businesses and consumers.

But a $4.5 billion cash offer from Bristol-Myers Squibb Co. for its cancer drug partner ImClone Systems Inc. buoyed the technology stocks and the tech-heavy Nasdaq Composite index.

The Commerce Department's report Thursday that gross domestic product grew at a 1.9 percent pace in second quarter was below the 2.4 percent predicted by economists polled by Thomson Financial/IFR. GDP reflects the value of all goods and services produced within the U.S.

The latest GDP reading, which reflected consumers cashing tax rebate checks, still shows the economy grew at a faster pace than the weak 0.9 percent seen in the first quarter. But revised numbers also reveal that the economy shrank in the fourth quarter last year.

Investors are also concerned by a Labor Department report that the number of people seeking jobless benefits jumped to 448,000 last week, an increase of 44,000 from the previous week. Economists had been expecting a decline of 8,000.

Thursday's stock market pullback follows sharp gains for stocks in the past two sessions as investors bet on a rebound in the beaten-down financial sector and grew more optimistic about the Labor Department's important July employment report on Friday.

But even as stocks have rallied at times in recent weeks investors have remained concerned about the housing and credit markets, the health of financial companies and the effect of high commodities prices. A pullback in oil in the past few weeks has raised some hopes that inflation could remain in check. Stocks managed to rally Wednesday in the face of rising oil prices, a rare occurrence.

In the first hour of trading, the Dow Jones industrial average fell 59.60, or 0.51 percent, to 11,524.09. The Dow jumped more than 180 points Wednesday, bringing its two-day gain to more than 450. Broader stock indicators traded mixed. The Standard & Poor's 500 index fell 4.52, or 0.35 percent, to 1,279.74, while the Nasdaq composite index rose 8.02, or 0.34 percent, to 2,337.34.

Bond prices jumped following the economic readings. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.97 percent from 4.05 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude fell 51 cents to $126.26 on the New York Mercantile Exchange after rising more than $4.50 on Wednesday.

In corporate news, Wall Street applauded the move by drug developer Bristol-Myers to pay $60 per share for ImClone, a 30 percent premium to ImClone's closing price of $46.44 Wednesday. Bristol-Myers, which already owns about 17 percent of ImClone, is a U.S. partner for the colon and head and neck cancer drug Erbitux. ImClone surged $17.98, or 39 percent, to $64.42. Bristol-Myers slipped 30 cents to $21.21.

Investors are also sifting through a flurry of quarterly profit reports. Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion, the largest quarterly profit ever by a U.S. corporation. However, the company's per-share results fell well short of Wall Street's forecast. Analysts had been expecting that record crude prices would push earnings higher. The stock fell $2.61, or 3.1 percent, to $81.77.

Motorola Inc. rose 56 cents, or 7.3 percent, to $8.24 after posting a surprise profit for its second quarter. The company said it shipped more cell phones than in the first quarter. Eastman Kodak Co. reported a second-quarter profit but the results missed Wall Street's forecast. The stock declined 78 cents, or 5 percent, to $14.99.

CVS Caremark, the drug store and pharmacy operator, said its second-quarter earnings rose 7 percent following stronger sales at its retail drug stores. The stock fell $1.13, or 3 percent, to $37.44.

Diversified manufacturer Tyco International Ltd. rose $2.46, or 5.8 percent, to $44.97 after the company said it swung to a fiscal third-quarter profit from a loss a year earlier when the company booked charges. Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 167.3 million shares.

The Russell 2000 index of smaller companies fell 3.65, or 0.51 percent, to 715.21. Overseas, Japan's Nikkei stock average closed up 0.07 percent. In afternoon trading, Britain's FTSE 100 fell 0.51 percent, Germany's DAX index declined 0.31 percent, and France's CAC-40 fell 0.63 percent.

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Forex - Euro steady as high euro zone inflation tempered by falls in oil prices

LONDON - The euro was steady against the dollar as a further increase in already-high euro zone inflation was tempered by the knowledge that oil prices have been falling lately. Provisional figures released on Thursday estimated euro zone annual inflation hit a new record high of 4.1 percent in July, up from 4.0 percent in June.

Though a further hike in inflation will exacerbate the European Central Bank's dilemma as it seeks to keep a lid on rising price pressures at a time when the economy is slowing, there is still comfort from the fact that oil prices have been coming down recently.

Peter Stoneham, currency strategist at Thomson IFR Markets said the inflation data prompted "a subdued reaction from the market". "We had felt that it would take a greater than 4.1 percent rise in prices to trigger a move with the market already beginning to factor in the fall in oil prices and an associated peak in euro zone inflation," he said.

"While the ECB will be concerned about the current trend in CPI it still looks at prices on an 18-month basis and if energy costs are easing and countering wage growth a period of steady policy is likely to dominate".

Trading remains fairly quiet, however, with many market players choosing to remain on the sidelines until the release of key U.S. jobs data Friday.

At 1221 GMT, the euro was trading at £1.5612, compared with $1.5622 at 0746 GMT. Earlier, the single currency gained a boost to move it off an overnight low of $1.5554 following a series of stronger-than expected regional European data.

In particular, figures showed the German labour market is still holding up well, with unemployment falling by 20,000 on the month in July in seasonally adjusted terms.

Elsewhere the pound remained under pressure, dropping back below the $1.98 mark against the dollar, after a series of bad economic news raised fears the United Kingdom could enter a recession.

Nationwide, the country's largest building society, said house prices fell 1.7 percent between June and July, the ninth consecutive fall. Meanwhile pollsters GfK NOP said its UK consumer confidence index dropped a further five points in July -39, its lowest level since the survey started in 1974.

"These data reinforce our view that the UK economy is going into recession," said Michael Saunders at Citigroup. "With monetary and fiscal policy both hamstrung, most of the economic pain still lies ahead," he added.

At 1221 GMT, the euro was trading at 0.7887 against the pound, up from 0.7881 at 0744 GMT, while the pound fell to $1.9788 against the dollar from $1.9825 at 0744 GMT.

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Euroshares flat mid-morning; mixed earnings, oil rally offsets Dow gains

At 9:51 a.m., the DJ STOXX 50 was down 0.24 points, or 0.01 percent, at 2882.55 and the DJ STOXX 600 was down 0.25 points, or 0.09 percent. at 283.75.

Unilever slumped 7.82 percent as the group made no new announcement about hoped-for plans to return cash to shareholders. This overshadowed what analysts at Cazenove described as a good set of results driven by emerging markets,.

Elsewhere on the earnings front, pharmaceuticals group Sanofi-Aventis tumbled 6.36 percent after it reported lower-than-expected earnings per share and revenues for the second quarter but raised its earnings-per-share forecast for 2008.

High raw material prices took their toll on Belgian chemicals and pharmaceuticals group Solvay in the second quarter. Its share price was down 11.3 percent.

Net profit for the group decreased to 131 million euros from 195 million in the corresponding period last year, under analysts' estimates of between 161 million euros and 166 million euros. Sales came in at 2.357 billion euros, down from 2.436 billion euros last year. Analysts had forecast sales of between 2.360 billion euros and 2.430 billion euros.

BASF SE shares tumbled 1.77 percent as analysts said the better-than-forecast numbers released earlier in the day suggested the start of a downturn in performance at the group's chemicals and plastics business. Deutsche Bank shares slipped back 0.71 percent after its showed mixed second-quarter figures.

However, HBOS shares climbed 3.5 percent as investors cheered better-than-expected numbers from the UK banking group.

Shares in Royal Dutch Shell added 0.89 percent as analysts warmed to the group's second-quarter earnings, saying the underlying performance was better than the consensus forecast, and after oil surged more than $4 in U.S. trade.

Italian energy company Eni SpA added 0.27 percent. It said earlier in the day that adjusted net profit rose 4.4 percent in the second quarter -- missing market expectations -- driven by higher crude oil prices and a 2.1 percent rise in oil and gas output, but hit by a higher tax rate.

French oil services group Technip lifted its earnings forecast after it posted a 29.4 percent rise in second-quarter net. Peer Saipem added 2.63 percent, helped up by a HSBC upgrade. SBM Offshore shares added 0.84 percent.

In merger and acquisition news, shares in EPCOS AG. were considerably higher in pre-bourse trade after Japan's TDK Corp confirmed rumours Wednesday, saying it plans to buy the German electronic parts manufacturer for a price tag of around 1.2 billion euros, or 17.85 euros in cash per share.

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Asian stock market summary

JAPAN

The Nikkei 225 Stock Average closed up 0.07 percent at 13,376.81, with an uncertain global economic outlook driving investors back to the sidelines. The broader Topix gained 0.05 percent to 1,303.62.

SOUTH KOREA

The KOSPI ended up 1.08 percent at 1,594.67, led by tech issues such as Hynix Semiconductor, which rose after its quarterly results, while steelmakers rallied on strong earnings and a positive outlook from the industry leader.

AUSTRALIA

Australia's S&P/ASX 200 closed up 40.7 points to 4,977.4, as gains in oil and metals prices lifted heavyweight resource firms such as BHP Billiton Ltd. and Woodside Petroleum Ltd.

CHINA

The benchmark Shanghai Composite Index closed down 2.15 percent at 2,775.72, with airlines and oil refiners leading the declines after a big rise in oil prices.
   
The Shanghai A-share Index was down 2.15 percent at 2,911.65, while the Shenzhen A-share Index fell 2.96 percent to 867.92. The Shanghai B-share Index fell 1.09 percent to 210.04, while the Shenzhen B-share Index lost 1.14 percent to 454.41.

TAIWAN
   
The weighted index closed down 0.65 percent at 7,024.06, as profit-taking wiped out early gains inspired by Wall Street's rally on news the Federal Reserve will expand its program to lend money to investment banks.
   
Despite the cabinet's decision to allow investment in Taiwan stocks by China's qualified domestic institutional investors from October, investors refrained from pushing the upside further on concerns that the market might need to test downside support again after rebounding from a mid-month trading low of 6,708 points.

PHILIPPINES

Manila's composite index finished down 0.3 percent at 2,577.10, as inflation-wary investors locked in recent gains following a strong rebound in crude oil prices overnight.

HONG KONG

The Hang Seng index closed up 40.5 points or 0.18 pct at 22,731.10, off a low of 22,695.73 and high of 22,878.76.
  
For the month of July, the index is up 629 points or 2.84 pct, while for the year to date it is down 5,081 points or 18.27 pct. Turnover was 56.47 bln hkd.

INDIA

The benchmark Sensex closed Thursday 68.54 points, or 0.48 percent, up at 14,355.75 points while the S&P CNX Nifty of the National Stock Exchange closed higher 0.45 percent, at 4,332.95 points.
   
Tata Power Co. Ltd. was the top gainer on the Sensex, as it gained 4 percent to 1,160 rupees.

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Oil prices drift lower after strong rebound

LONDON - World oil prices fell on Thursday on profit-taking after a rebound of more than four dollars the previous day that was driven by an unexpected decline in U.S. gasoline stockpiles, analysts said.

New York's main contract, light sweet crude for September delivery, handed back 55 cents to $126.22 a barrel. The contract rallied $4.58 to $126.77 at the close of floor trading Wednesday on the New York Mercantile Exchange.

On Thursday, Brent North Sea crude for September delivery was 80 cents lower at $126.30 a barrel following a rally of $4.39 the previous day. "Crude futures were a little lower amid profit-taking, following yesterday's (Wednesday's) rally and technical selling," said Nimit Khamar, analyst at the Sucden brokerage in London on Thursday.

"Momentum is still to the downside, although yesterday was the first time in more than two weeks (that) the market closed above the previous day's range." Libya's Oil Minister Shukri Ghanem forecast on Thursday that the price of crude oil was set for a rebound.

Libya is a member of the Organisation of Petroleum Exporting Countries. "There is a big fall because prices are currently high," he said by telephone to Agence France-Presse. "When prices are 130 or 140 dollars per barrel, they fall back more sharply."

He said that "we are following developments (on prices) closely...but we think they will rebound," in a reference to a rally of 4.5 dollars per barrel on the London and New York markets on Wednesday.

The U.S. Department of Energy (DoE) said Wednesday that American gasoline or petrol inventories sank by 3.5 million barrels in the week ending July 25.

That surprised traders because market expectations had been for a weekly gain of 400,000 barrels. The weekly DoE report was the main catalyst for Wednesday's sharp rise in prices, said David Moore, a Commonwealth Bank of Australia analyst in Sydney.

The DoE added Wednesday that crude reserves fell by 100,000 barrels. That was the second weekly decline in a row and compared with analysts' consensus forecasts for a heavier drop of 1.25 million barrels. "In our opinion the report was fairly mixed overall," added Khamar. "Market participants decided to plough money back into the market after gasoline stocks fell by 3.5 million barrels."

Oil prices have dropped about $20 since touching record highs above $147 a barrel on July 11. Traders said the downwards move was due to slackening energy demand in the United States. "It is clear that consumption is slowing" in response to weak economic conditions, said Antoine Halff, an analyst at Newedge Group.

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