US & World Daily Markets Financial Briefing 17-01-2008

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US weekly jobless claims down 21,000; 4 wk moving avg lowest since Oct

WASHINGTON - The number of people filing new claims for unemployment insurance continued its steady decline in the latest week, though the number of those continuing to claim unemployment insurance remains at an over two year high, the Labor Department said today.

The number of first-time claims filed in the week ending January 12 declined by 21,000 to 301,000, below the 335,000 claims economists polled by Thomson's IFR Markets had expected. That's the lowest level since September.

The four week moving average for initial claims decreased by 11,750 to 328,500, the lowest level since October. Michael Moran from Daiwa Securities America said he would interpret the initial claims figures "quite cautiously" because the numbers are "especially volatile" this time of year because of the weather and the holiday season.

"I suspect that the warmer temperatures during January have resulted in lower layoffs in construction." Joseph Bruseulas from IDEAglobal said, "The unexpected fall in claims tends to support the surprisingly positive tone on the labor market taken in the most recent Fed beige book."

Meg Browne from Brown Brothers Hamilton said drops in initial claims numbers are "encouraging," but "you need to see this trend continue over the course of the month" in order to give it any serious weight.

The Labor Department also reported today that in the week ending January 5, the number of individuals continuing to receive unemployment insurance rose 66,000 to 2.751 mln from a downwardly revised 2.685 mln. Economists were expecting 2.710 mln claims.

The four week moving average for continuing claims rose 28,250 to 2.726 mln, the highest level since November 2005. Moran said, "I would give a little more weight" to continuing claims numbers than to initial claims. Brusuelas said today's report "sets up the January non-farm payrolls as the next big data release that will signal if the eocnomy is currently in recession."

U.S. stocks turn broadly lower after weak Philly Fed data

NEW YORK - U.S. stocks erased earlier gains to trade lower Thursday, after the release of much weaker-than-expected data on manufacturing activity in the Philadelphia region.

The Dow industrials were down 82 points at 12,384, the Nasdaq Composite was shedding 11 points at 2,384 and the S&P 500 Index was 13-points lower at 1,360.

Prior to the release of Philly Fed Index, the Dow was around 12,510, the Nasdaq was at about 2,415 and the S&P 500 was around 1,376.50.

The Philly Fed index fell to a negative 20.9, much worse than the median estimate of economists surveyed by IFR Markets of negative 1.3.

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Forex - Sterling up on hawkish Gieve comments; euro regains footing

LONDON  - Sterling rose on hawkish comments from a Bank of England (BoE) member, while the euro regained its footing after a euro zone central banker qualified his dovish comments from yesterday. BoE deputy governor John Gieve warned of a "sharp rise" in inflation in the UK over the coming months, complicating the job of rate-setters at a time when the credit crunch has diminished growth prospects.

He said the big rise in recent months of world oil and food prices, amplified by the sharp fall in the pound, is coming through in food, petrol, gas and electricity prices. "These are likely to raise our inflation rate well above target in the coming months at a time when short-term inflation expectations remain uncomfortably high," he said.

The Monetary Policy Committee (MPC) is widely tipped to cut its benchmark Bank rate another quarter point in February to 5.25 pct.

Elsewhere, the euro regained its footing after European Central Bank (ECB) member Yves Mersch sought to play down some of his dovish comments yesterday.

Yesterday, Mersch suggested the ECB could "look through" temporary high levels of inflation and spoke of downside risks to economic activity, causing a euro rout -- but he later qualified his comments, noting the ECB did not consider a cut at its last meeting.

"In the short-term, high inflation will keep the Bank to its hawkish bias," said Geoffrey Yu at UBS. All eyes will be on ECB president Jean-Claude Trichet's speech today and whether he goes further in undoing the market's interpretation of Mersch's comments.

The dollar, meanwhile, weakened sharply against the yen but was little changed against the euro, after more dreadful news from the property market, where housing starts fell 24.8 pct in 2007 -- the sharpest calendar-year decline since 1980.

"The dollar might be losing out again to the yen but versus the euro the US unit is attempting to shrug off the data disappointment," said IFR Markets' Peter Stoneham. Much focus this afternoon will be on an economic outlook speech by Federal Reserve chairman Ben Bernanke at 1500 GMT.

However, Yu at UBS predicted the euro, not the dollar, could be the chief loser from any insight gained into Fed thinking. "Based on yesterday's price action, the euro is much more exposed (than the dollar) fto a re-assessment of interest rate expectations," he said.

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Euroshares pare gains midday, on 'disastrous' Merrill results; techs, retail up

At 12.17 pm, the DJ STOXX was 1.14 points or 0.03 pct higher at 3,433.56, while the STOXX 600 rose 1.10 points or 0.33 pct to 333.85. Looking ahead, US futures turned lower with IG Index expecting the DJIA to lose some 40 points upon opening following a what some called disastrous fourth quarter earnings report from Merrill Lynch.

Merrill Lynch just revealed that total write-downs in the fourth quarter came to 11.5 bln usd on CDO/subprime exposure. It added that its net loss in the quarter amounted to 12.01 usd a share.

"This is very weak. The loss per share is almost three times as high as expected! The write-down is almost as bad as Citigroup and it looks like they haven't even booked everything," one Frankfurt-based trader said.

Meanwhile, Ben Bernanke, Chairman of the US Federal Reserve, will deliver his semi-annual testimony to Congress today and tomorrow, and economists note that he has indicated that he is open to congressional and White House efforts to develop a rescue package to avert a recession.

Back in Europe, chip makers were rebounding, with Infineon soaring 5.89 pct, while ASML climbed 4.44 pct higher. Traders noted the stocks were in high demand from bargain hunters following a sharp decline earlier in the week, and that some were hoping that the current slump in chip prices will result in the reduction of output by several market players, thereby driving prices higher again.

In addition, earnings news were in focus, with Alstom rising 5.61 pct after the French engineering group presented better-than-expected third-quarter earnings results. "The sales are excellent, we're maintaining a highly positive stance on Alstom," said Romain Hayat from Meeschaert.

In the retail sector, AB Foods, Delhaize and HMV outshone their peers with solid trading updates and optimistic outlooks. AB Foods jumped 7.03 pct, after it said trading at its budget fashion chain Primark was ahead of expectations over the Christmas period.

Dresdner Kleinwort upgraded the stock to 'add' from 'hold' and maintained its target at 850 pence. It acknowledged that commodity price volatility will continue to be a headwind for the group, particularly for ACH, its North American grocery division, but said it remains confident management can offset this.

In Belgium, Delhaize gained 2.83 pct. While the group presented largely in-line results, it showed optimism towards its prospects for 2008. "We are preparing for another strong year in 2008. While the economy is far more uncertain than last year, it is also true that strong companies will be able to seize opportunities in such an environment," it said.

HMV Group shot 8.44 pct higher after it said it expects its full-year pretax profit to be towards the upper end of the current market expectations. The good news from retailers also provided a lift to peers. Tesco and Debenhams added 1.92 pct and 8.89 pct respectively, while Carrefour was 1.75 pct higher.

Enthusiasm was unfazed by a downgrade on the overall European sector at Goldman Sachs, which said that weaker results by Tesco and Carrefour had indicated that these companies may be more sensitive to consumer spending than they have been historically.

The broker cut its stance on the sector to 'neutral' from 'attractive'. The pharmaceutical sector was the problem child today, after Novartis disappointed with a fall in fourth-quarter net profit, blaming some 444 mln usd in restructuring charges as well as negative trends in US pharma sales amongst others.

Shares dropped 2.53 pct, and stock such as BASF fell in sympathy, down 0.16 pct. In other news, Alcatel-Lucent added 4.87 pct as it confirmed a press report that it has been named as Brasil Telecom's sole partner for its network, but would not say how much it was worth.

Press reports suggest that the contract may be worth a total of 773 mln eur. "The news indicates that they've beaten Ericsson, Nokia, Siemens, which is pleasing the market. It looks like Alcatel is finally starting to win back some ground," a Paris-based trader said.

And in M&A chatter, Colonial remains in the spotlight, adding another 9.23 pct this morning, following a press report in Negocio which suggests that its core shareholder Nozar hopes to sell its 16.31 pct stake within the next two weeks.

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Asian markets end higher as investors seek bargains 

The Nikkei gained 2.1 pct to 13,783.45 after seesawing between negative and positive territory in early afternoon. Tokyo shares advanced as the yen eased against the US dollar ahead of US Federal Reserve chairman Ben Bernanke's testimony to Congress.

The broader Topix climbed 2.2 pct to 1,330.44. "Investors appear to sense that the selling was overdone after the Nikkei fell briefly below the 13,500 support line," said Toshio Sumitani, senior strategist at Tokai Tokyo Research Center.

The Hang Seng ended 2.7 pct higher at 25,114.98 on bargain-hunting, and South Korea's KOSPI gained 1.1 pct to 1,723.55. Singapore's Straits Times Index ended 2.7 pct higher at 3,139.88.

Australian benchmarks underperformed. The S&P/ASX 200 was down 0.2 pct to 5,796.1 and the All Ordinaries lost 0.2 pct to 5,857.  The Shanghai Composite was likewise under water, down 2.6 pct at 5,151.63.

Property developer Mitsui Fudosan was up 6.2 pct at 2,130 yen. Mitsubishi Estate rose 7 pct to 2,450 yen and Sumitomo Realty & Development climbed 4.2 pct to 2,245 yen.

Major general contractor Obayashi rose 7.5 pct to 602 yen. Nippon Steel was up 3.1 pct at 630 yen, while Sumitomo Metal Industries rose 3.5 pct to 506 yen. Construction machinery maker Komatsu was up 2.5 pct at 2,425 yen.

Shares of Mitsubishi UFJ Financial Group gained 2.1 pct to 972 yen even after the Nikkei newspaper said the major Japanese bank will suffer more than 50 bln yen in subprime-related losses for the year to March, larger than the 27 bln yen loss it projected in November.

Other big banks were mixed. Mizuho Financial Group was up 5.3 pct at 483,000 yen while Sumitomo Mitsui Financial Group was 0.8  pct lower at 802,000 yen.

Export-oriented car and electronic issues were firmer on the yen factor. Toyota Motor rose 3 pct to 5,470 yen while Honda Motor climbed 3.9 pct to 3,220 yen. Consumer electronics giant Sony rose 2.7 pct to 5,660 yen.

In Hong Kong, select Chinese banks were firmer as investors sought out bargains following recent steep falls. The sector showed little reaction to China's latest attempt to curb money supply and inflation via a reserve requirement hike.

"The move is consistent with the hawkish stance the (mainland) central bank has demonstrated in recent months," Credit Suisse said in a note to clients. "It is not a big surprise to us, other than the fact that it was announced on Wednesday instead of the usual Friday," according to the note, attributed to analysts Dong Tao and Christiaan Tuntono.

Industrial & Commercial Bank of China, the mainland's biggest bank, rose 3.3 pct to 5 hkd and China Construction Bank, the number three lender, also gained 3.3 pct at 6.04 hkd.

The Bank of China, the second largest lender on the mainland, gained 3.9 pct at 3.44 hkd and China Construction Bank rose 3.3 pct to 6.05 hkd. Chip makers rose strongly as investors hoped that weak memory chip prices would force smaller foreign chip makers to cut their output to stem losses, leading to a faster-than-expected price stabilization.

Samsung Electronics gained 5.7 pct to 560,000 won and Hynix Semiconductor surged 12.1 pct to 24,500 won. Banks traded firmer, tracking their US peers on hopes they may be approaching the bottom. Kookmin Bank jumped 4.1 pct to 63,500 won and Shinhan Financial surged 7.5 pct to 48,600 won.

Elsewhere in the region, the Philippine composite index closed down 3.1 pct at 3,248.89, Malaysia's Kuala Lumpur Composite Index was up 0.5 pct at 1,460.71 and the Jakarta index rose 2.2 pct at 2,649.28. Taiwan's weighted index closed down 1 pct at 8,101.63.

The Bombay Stock Exchange's 30-share Sensitive Index shed 167.29 points or 0.84 pct to close at 19,700.82 while the National Stock Exchange's 50-share S&P CNX Nifty fell 22.55 points or 0.38 pct to 5,913.20.

Among the Sensex 30 blue-chips, 17 shares lost while 13 gainers. Cement maker Ambuja Cements Ltd declined the most, losing 3.89 pct to 130.80 rupees. Ambuja has declined more than 10 pct since December 17. FMCG major ITC Ltd rose 3.98 pct to 217.10 rupees to be the top gainer among the blue-chips. ITC has risen more than 12 pct since December 17.

India's largest private-sector lender ICICI Bank Ltd dipped 3.46 pct to 1,321.80 rupees today. On a net basis, the share has surged more than 13 pct since December 17.

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Metals - Copper recovers from two days of falls amid US rate cut hopes

LONDON  - Copper recovered from two days of falls amid overnight gains in Asia, a rebound in global equity markets and hopes the current US economic slowdown might be tempered by aggressive rate cuts.

In addition, further falls in LME inventories, combined with a recovery in other commodities like gold and oil and reports of physical buying in China also boosted prices of the metal. "Given the weak outlook for the US economy it is easy to be bearish for base metals and over the long run we think a downturn in the US will drag down the global economy enough to see metal prices fall significantly later in 2008.

"However, near term we think there is room for some rebounds as China steps up imports and reduces exports across the metals and as consumers switch from destocking mode to hand to mouth buying," said BaseMetals.com analyst William Adams.

At 9.58 am, LME copper for 3 month delivery was up at 7,112 usd a tonne against 7,000 usd at the close yesterday.

Players are awaiting US Federal Reserve chairman Ben Bernanke's testimony later this afternoon to the House Budget Committee on the outlook for the US economy. Yesterday, relatively benign US consumer price inflation data for December raised hopes that aggressive Fed rate cuts will be possible, and will not necessarily lead to runaway inflation.

As a result, equity markets recovered in Asia today while European stock markets have opened higher, even though many feel the rebound, in equities as well as commodities, is tenuous at best. "Recession fears are still at the forefront of everyone's trading strategies," said analysts at RBC Capital Markets. They added, however, that declining copper stocks are currently preventing heavy selling.

The LME said in a daily report today copper stocks held in its warehouses fell by a large 5,500 tonnes to total 185,550 tonnes. Stocks have now fallen for eight days straight. Elsewhere, lead was down at 2,600 usd a tonne against 2,609 usd, with analysts saying it might struggle near term as supplies from Australia, shut in for nearly a year now, are expected to come back on stream shortly.

The Australian authorities have reportedly given conditional approval for Ivernia's Magellan mine to ship lead concentrates via the alternative port of Freemantle. The news "may prove a hurdle for lead prices, but given this has been expected for a number of months now this may well already be in the price", said Adams.

Nickel rose to 28,225 usd against 27,900 usd, with markets cautiously upbeat on the outlook for prices amid hopes demand from the stainless steel will pick up shortly.

"Reports indicate that Chinese firms are holding off purchases of nickel hoping for weaker prices, although this could be a dangerous game with significant increases expected this year in terms of demand from new stainless steel capacity and production," Fairfax IS analyst Marc Elliot.

In other metals, tin was flat at 16,300 usd, aluminium was up at 2,475 usd against 2,469 usd while zinc was flat at 2,280 usd.

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