US & World Daily Markets Financial Briefing 09-01-2008

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Stocks rise in early tradingf

NEW YORK - Wall Street staged a moderate rebound in early trading Wednesday, a day after stocks tumbled amid questions about the strength of the economy and the soundness of upcoming corporate earnings reports.
   
Unease about the economy has caused intense market volatility since the start of the year, with stocks rising on hopes for more interest rate cuts, and plunging as investors doubt that will be enough.

The market has been very nervous with fourth-quarter earnings season about to begin and many questions lingering about the fallout from the mortgage and credit crisis.
   
Investors were jolted Tuesday by speculation that Countrywide Financial Corp. would file for bankruptcy protection, and after AT&T Inc.'s chief executive said the U.S. economic slowdown was hurting the company's consumer business. That sent the Dow Jones industrial average down nearly 240 points.
   
There was little in the way of economic news Wednesday as investors awaited a speech by Federal Reserve Chairman Ben Bernanke on Thursday that could give clues about the central bank's stance on the weakening economy.
   
In the first hour of trading, the Dow Jones industrial average rose 71.61, or 0.57 percent, to 12,660.68.
   
Broader stock indicators also rose. The Standard & Poor's 500 index rose 6.40, or 0.46 percent, to 1,396.59, and the Nasdaq composite index rose 18.73, or 0.77 percent, to 2,459.24.
   
With Tuesday's close, the Dow and S&P 500 were each down more than 5 percent since Jan. 1, and the Nasdaq is down nearly 8 percent. Tuesday's decline pushed the Dow and the S&P 500 down more than 11 percent from their highs in early October. A decline of more than 10 percent signals a market correction.

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Forex - Pound remains under pressure, euro edges down on weak German data

The pound remained in the doldrums on speculation the Bank of England will cut interest rates tomorrow and a weak set of results from Marks & Spencer. Sterling hit a nine month low against the dollar this morning as the businsess community stepped up its calls for the BoE to trim borrowing costs as worries about a downturn in consumer spending mounted.

Sterling has also lost a lot of ground following retailer Marks & Spencer reporting a 2.2 pct drop in like-for-like sales in the 13 weeks to Dec 29th. The news is seen as further evidence that UK consumers are sharply cutting back their spending, heightening fears that a sharp economic slowdown is on the cards.

This pushed the pound down to a low of 1.9602 usd, its lowest level since April 2007. Elsewhere the euro was slightly lower following a poor set of German data, raising fears that the euro zone economy may start to slow in the coming months.

German industrial output fell 0.9 pct during November from October, well below expectations for a rise of 0.4 pct. This followed earlier news that German retail sales fell 1.3 pct in November from October, again much weaker than expected.

"The latest data point to a clear risk that German GDP growth will slow more sharply then we had expected in 2008," said Jennifer McKeown at Capital Economics. The European Central Bank is widely expected to keep interest rates on hold tomorrow at 4.00 pct and for the next few months.

However recent data is starting to show evidence that the euro zone economy is slowing, and economists say talk of a cut may become likely in the coming weeks.

"There is a clear risk that the second half of 2008 in the euro zone may look decidedly different than the first half as currency appreciation takes an increasing toll on a region that is still overly dependent on export growth," said Neil Mellor, currency strategist at Bank of New York.

"We suspect that the euro may be unable to make much headway above and beyond the all-time highs it reached back in November; and the risk remains that the ECB may yet be pressured into standing pat on Euro-zone interest rates," he added.

Meanwhile the dollar remained stable, boosted by news reports that the US government is considering tax rebates to encourage consumer spending and business investment. Bush was quoted yesterday as saying that he is watching the troubled US economy very closely and will consider what actions the government could do to help stave off a recession.

This helped the greenback recover some of yesterday's losses, caused by fresh concern over the US mortgage sector and a profit warning from telecommunication firm AT & T. The US fourth quarter results seasons starts in earnest today, and analysts expect corporate earnings to have dropped significantly from third quarter levels.

For FX markets, the key event from a dollar perspective this week will be Federal Reserve chairman Ben Bernanke's speech tomorrow. Investors will be looking for any indication that a 50 basis point interest rate cut is a feasible possibility, which is likely to put the dollar under pressure. "Any hints of the need for more aggressive rate cuts could be the catalyst for the euro to run up to 1.4825/50 usd," said Chris Turner, currency strategist at ING.

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Euroshares open down after Wall St losses; M&S, Sodexho disappoint 

At 9.33 am, the DJ STOXX 50 fell 46.37 points or 1.28 pct to 3,568.11, while the STOXX 600 lost 5.38 points or 1.52 pct to 348.05. Retailer Marks & Spencer was in focus this morning, shedding 18.97 pct after the UK group reported a worse-than-expected Christmas trading performance and reiterated its caution on the consumer outlook for 2008.

Analyst Nick Bubb at Pali described today's news as "disastrous", saying clothing sales were far below expectations. Brokerage Evolution cut its stance on the stock to 'reduce' from 'add', while Landsbanki lowered its recommendation to 'hold' from 'buy'.

Other retailers fell as well, with Debenhams losing 9.41 pct, Next down 7.54 pct and Metro shedding 2.43 pct. Delhaize was 4.58 pct lower, with traders blaming the Belgian food retailer's high exposure to the ailing US economy.

Meanwhile, Sodexho Alliance fell 3.19 pct, with investors reacting cautiously to the group's statement earlier it has seen a slowdown in events catering in the US but does not expect a significant impact on its performance. Traders noted the underperformance reflects the current nervousness in the market towards any exposure to the US consumer market and added investors are waiting for direction from further economic data due tomorrow.

Elsewhere, a bleak outlook from US telecoms carrier AT & T put pressure on its European counterparts. The sector fell some 2.34 pct as a result. Late last night, AT & T chairman and chief executive Randall Stephenson said the telecom carrier is experiencing some slowdown in its broadband and traditional wire phone sales to consumers.

BT fell 3.60 pct, Tele2 lost 2.44 pct, Vodafone was 2.77 pct lower and Telecom Italia fell 2.08 pct. And shares in BP retreated 4.03 pct, with dealers noting talk the UK oil & gas giant has been guiding the market consensus lower.

And in Switzerland, Novartis added 0.86 pct after the group said new data shows its Menveo vaccine was well-tolerated and generated high levels of immunogenicity in infants against four of the most common causes of meningococcal disease.

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Asian stocks end mostly higher; Hong Kong, Japan reverse losses

The Hang Seng closed up 1.86 pct at 27,615.85, reversing from an early low of 26,757.03 on bargain-hunting in property stocks and a sharp rally in shares of offshore oil producer CNOOC. CNOOC rose with higher oil prices ahead of weekly data on US inventories.

The Tokyo market also turned around with the Nikkei closing 0.5 pct higher at 14,599.16 and the Topix adding 1.5 pct to 1,424.29. But Australia failed to find its way back into the black. The S&P/ASX 200 closed down 0.7 pct at 6,087.7 and the All Ordinaries was down 0.7 pct at 6,159.5.

Most Asian benchmarks have performed better. The Shanghai Composite is up 2 pct in the year so far, the Indian Sensex is up 2.9 pct and the Kuala Lumpur Composite is up 2.7 pct. But benchmarks in Singapore, Taiwan and Thailand are in the red for the year and the Australian benchmarks are down about 4 pct each.

Among individual Asian stocks Wednesday, China Eastern Airlines, which resumed trading after Tuesday's suspension, fell 0.36 yuan to 20.27, after its shareholders rejected a stake sale to Singapore Airlines (SIA) and SIA's parent Temasek Holdings yesterday.

Minority shareholders of China Eastern voted against the proposed purchase by SIA and Temasek of a 24 pct stake in the mainland's third largest airline for 3.80 dollars per share, seeking a better offer, which China National Aviation Corp (CNAC) said it would deliver with its likely partners, Air China and Cathay Pacific Airways. "After yesterday's rejection, there will be a new round of negotiations.

 Commodity stocks rally Gold miners rallied across the region after gold futures struck a fresh record above 690 dollars a troy ounce. In Australia, Newcrest was up 6.6 pct at 39.28 aud while Lihir Gold gained 6.8 pct to 3.94 aud. In Manila, Philex Mining Corp rose 3.1 pct to 9.90 pesos. In Hong Kong, Zijin Mining was up 2.5 pct at 13.10 hkd while Lingbao Gold was up 5 pct at 5.93 hkd.

Oil stocks were higher with rising crude prices as traders bet on another decline in US crude stocks when data is released later today. CNOOC was up 4.67 pct at 13.9 Hong Kong dollars. In Seoul, POSCO gained 0.6 pct to 543,000 won ahead of its earnings announcement tomorrow. The KOSPI index closed up 1 pct at 1,844.47.

Elsewhere, The Shanghai Composite closed up 0.9 pct at 5,435.8, the Singapore Straits Times closed 0.2 pct higher at 3,344.53, and the Jakarta composite index closed up 1.6 pct at a fresh record high of 2,830.26. The Kuala Lumpur Composite Index (KLCI) closed up 0.1 pct at 1,491.66 while Taipei's weighted index closed up 1.53 pct at 8,085.06. Manila's composite index finished down 0.1 pct at 3,416.08.

India Shares

The Bombay Stock Exchange's 30-share Sensitive Index hit an all-time high for the third successive trading day today, touching 21,113.13 points, before closing 3.55 points or 0.02 pct lower at 20,869.78.

The National Stock Exchange's 50-share S&P CNX Nifty closed 66.30 points below the day's high of 6,338.30, and ended 15.85 points or 0.25 pct down from yesterday's close.

Of the 30 Sensex companies, 18 declined. These were led by auto company Mahindra & Mahindra Ltd, which dipped 2.67 pct to 807.90 rupees. Energy company National Thermal Power Corp Ltd (NTPC) gained the most, rising 4.49 pct to 277.15 rupees.

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Metals - Copper buoyed by Chinese demand

At 10.18 am, LME copper for three-month delivery was up at 7,381 usd per tonne against 7,230 usd at the close yesterday. Overnight, Shanghai copper futures rose by their daily limit of 4 pct, boosted by buying ahead of the Chinese New Year on Feb 7 and signs of lower inventory levels in Asia. China is the world's top consumer of the red metal.

Funds are also boosting the market by coming into commodities at a time when equities are less attractive due to the ongoing economic uncertainty.

"The day-to-day movements in metals prices have been erratic, with start-of-the-year investment inflows and the impact of commodity index rebalancing likely contributing to the recent lift in metals prices," said analyst David Moore at Commonwealth Bank of Australia. Gold and oil prices are also up, with the precious metal breaking through the 890 usd mark for the first time ever today.

While commodities are broadly rising right now, many have voiced concerns a bubble could be emerging. Demand for commodities could well fall should the US or global economy slip into a recession or widespread slowdown.

"Metals prices are pushing ahead despite economic worries in the US and Japan," said Fairfax analyst John Meyer. In other metals, three-month nickel was up at 30,500 usd per tonne from 29,895 usd per tonne at the close yesterday.

Nickel's rise since the start of the year has been supported by expectations for higher stainless steel production levels and the reweighting of index fund portfolios.

Nickel has been under pressure since hitting a record of nearly 52,000 usd per tonne last May, losing almost 45 pct in value because of demand destruction and stainless steel producers searching for cheaper alternatives.

Tin for delivery in three months was flat at 16,500 usd per tonne, with lead also steady down to just 2,650 usd against 2,660 usd per tonne. Aluminium edged up to 2,514.75 usd per tonne, basis three months, from 2,505 usd while zinc rose to 2,588 usd per tonne from 2,580 usd.

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