US & World Daily Markets Financial Briefing 24-08-2006

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Stocks rebound despite economic data

NEW YORK - Wall Street rebounded in early trading Thursday despite economic data showing durable goods orders pulled back last month.

Investors who have sent the markets down for three straight sessions are questioning whether the Federal Reserve's campaign of 17-straight interest rate increases is affecting economic growth. The biggest indicator this week will come later in the morning, new home sales data that is expected to show the housing market cooled last month.
   
In company news, Rite Aid Corp. agreed to buy drug stores from Jean Coutu Group Inc. in a $2.55 bln cash and stock deal. Also, retailers showed weakness after both Chico's FAS Inc. and Williams-Sonoma Inc. cut earnings forecasts.
   
In the first hour of trading, the Dow Jones industrial average gained 22.25, or 0.20 percent, to 11,320.15.
   
Broader stock indicators were also higher. The Standard & Poor's 500 index edged up 3.30, or 0.26 percent, to 1,296.29, and the Nasdaq composite index rose 5.50, or 0.26 percent, to 2,140.16. The Russell 2000 index of smaller companies was 1.58, or 0.23 percent, to 700.00.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note dropping to 4.79 percent from 4.81 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices fell.

Overseas, Japan's Nikkei stock average tumbled 1.25 percent. In afternoon trading, Britain's FTSE 100 was up 0.47 percent, Germany's DAX index was up 1.07 percent, and France's CAC 40 rose 0.81 percent.

Stocks in focus
   
Rite Aid slipped 23 cents, or 4.9 percent, to $4.45 after it agreed to buy U.S. Eckerd and Brooks operations from Canada's Jean Coutu Group. The deal makes Ride Aid the largest drugstore chain operator on the East Coast, trailing Walgreen and CVS nationally.
   
Retailers, which have been depressed over concerns that consumer spending has dropped, were also a casualty in early trading. Chico's FAS shares plunged $5.37, or 22 percent, to $18.71 after the woman's retailer reduced its outlook for the third and fourth quarters.
   
Williams-Sonoma shares dropped $2.40, or 7.4 percent, to $30.20 after the housewares retailer slashed its outlook for the rest of the year due to disappointing sales at its Pottery Barn chain.

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WASHINGTON - Orders to U.S. factories for big-ticket manufactured goods fell 2.4 percent in July as demand for aircraft and automobiles weakened.
   
The Commerce Department reported Thursday that new orders for durable goods decreased by $5.3 billion last month. The 2.4 percent decline, which followed two straight monthly increases, was a poorer showing than the unchanged level that analysts had expected.
   
Much of the weakness came from a 9.6 percent drop in demand for transportation equipment, which included a 10 percent decline in new orders for commercial aircraft and parts, and a 7 percent fall in orders for motor vehicles and parts.
   
In other economic news Thursday, the Labor Department reported that the number of Americans filing claims for unemployment benefits last week slipped by 1,000 to 313,000.
   
U.S. automakers continue to struggle with lagging sales in the face of rising gasoline prices, which have cut demand for previously popular models such as sport utility vehicles.
   
Analysts believe that output in the manufacturing sector will rise in coming months but at a slower pace than before, reflecting an economy that is slowing under the impact of surging energy prices, rising interest rates and a cooling housing market.
   
Data released Wednesday provided fresh evidence of how much that once-sizzling market has cooled. Sales of previously owned homes dropped 4.1 percent in July from June to a 2 1/2-year low while the inventory of unsold homes climbed to a record high, the National Association of Realtors reported.
   
The report rattled investors and pushed stocks lower on Wall Street. The Dow Jones industrials lost 41.94 points to close at 11,297.90.
   
Prospective home buyers have turned cautious about making such a big-ticket purchase as mortgage rates have gone up and uncertainty has risen over whether the economy and job creation will keep slowing, analysts said.
   
For July, orders for durable goods -- items expected to last at least three years -- totaled $212 billion, a decline of $5.3 billion from the June level.
   
Excluding transportation equipment, orders were up 0.5 percent in July.

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Dollar rises after US durable goods, jobless claims data

LONDON - The dollar rose against the euro after the detail of this afternoon's US durable goods orders data was viewed as positive despite a weak headline number, while weekly jobless claim figures were also strong.
   
Figures showed US durable goods orders fell by 2.4 pct in July, well below expectations for a rise of 0.5 pct. The detail of the release, however, was much more positive, with orders excluding transport rising by 0.5 pct despite the sharp fall in the headline number, while June's orders were also revised higher.
   
Meanwhile, weekly jobless claims numbers came in above expectations, falling by 1,000 to 313,000 in the week to August 18, better than expectations for a rise in claims to 318,000.
   
Attention, however, will soon be directed to the US new homes sales figures out later this afternoon, amid continuing evidence of a slowdown in the housing market.
   
After the data, the euro fell from around 1.2836 usd to a low of 1.2808, before bouncing back a little.
   
Earlier today, the euro gained support from this morning's key German Ifo survey, showing only a small drop in German business confidence in August. The fall was far less than many had feared, particularly after Tuesday's very weak ZEW survey.
   
The fall in the Ifo index moreover will do nothing to dampen market expectations that the European Central Bank will raise euro-zone interest rates in October and probably again once more before the end of the year.
   
Meanwhile, further data confirmed German quarterly economic growth at 0.9 pct in the second quarter of the year, the highest growth in five years.

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Asian shares close mostly lower on US economy fears, commodity prices

HONG KONG - Shares across the Asia-Pacific region ended mostly lower on fears for the US economy and a fall in commodity prices, dealers said.
   
Tokyo share prices closed lower in tandem with weaker US stocks overnight following poor housing data which sparked worries over the prospects for the US economy, dealers said.
   
The Nikkei 225 Stock Average closed down 202.41 points or 1.25 pct at 15,960.62, off a low of 15,910.62. The broader TOPIX index of all first-section issues lost 17.25 points or 1.05 pct to 1,623.03, off a low of 1,618.35.
   
US existing home sales in July fell 4.1 pct to an annual rate of 6.33 mln units, the lowest level since January 2004. Economists were expecting a figure of 6.55 mln units.
   
Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center, said investors would like to see more US economic data, including durable goods orders and new home sales due tonight, to gauge where the US economy is headed.
   
Australian shares finished sharply lower as the broader market followed selling in resource stocks after commodity prices dropped overnight, dealers said.
   
They said the selling momentum weighed on major banking stocks and stronger earnings reports from many companies failed to improve negative investor sentiment.
   
The S&P/ASX 200 shed 94.5 points or 1.86 pct to close at 4,987.8. The benchmark indicator closed off the day's low of 4,982.7, with the high at 5,071.9.
   
Hong Kong shares were lower in afternoon trade on the US housing data and with the market awaiting results from several major local companies, dealers said.
   
At 3.29 pm the Hang Seng Index was off 174.83 points or 1.02 pct at 16,913.56.
   
In China, A-shares in Shanghai and Shenzhen closed higher on renewed bargain-hunting with metal and real estate listings snapped up, dealers said.
   
The Shanghai A-share Index added 11.19 points or 0.66 pct to 1,706.22 and the Shenzhen A-share Index was up 2.41 points or 0.58 pct at 419.34.
   
Seoul shares closed lower, extending losses for a second session, on investor worries that the US economic slowdown is too sharp, dealers said.
   
The market remained weak throughout the session, with foreign investor sell-offs in the spot and futures markets dragging the index below 1,310 points at one stage, they noted. The weakness in Tokyo shares also pressured sentiment.
   
The KOSPI index closed down 9.22 points or 0.70 pct at 1,315.73, after moving between 1,309.55 and 1,322.22.

Asian Bourse Round-Up

For a full list of closing figures, click here 

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Oil prices extended their decline, with light sweet crude for October delivery fell 12 cents to $71.64 a barrel in premarket electronic trading on the New York Mercantile Exchange.

Crude has been impacted this week by continued uncertainty in the Middle East, and after U.S. government data showed Wednesday rising supplies of gasoline as refiners increased output.

US gasoline (petrol) stocks showed a surprise gain of 400,000 barrels in the week to Aug 18, rising to 205.8 mln barrels, the Department of Energy said in its weekly report yesterday. Analysts had anticipated a decline of more than 2 mln barrels.
   
The increase was achieved despite robust demand for petrol, with many Americans on the roads for summer vacations.
   
The inventories data, coupled with calls by Iran for talks to resolve its nuclear standoff with the international community, had sent New York crude tumbling 1.34 usd to a close of 71.76 usd/barrel yesterday. Brent North Sea crude had plunged 1.22 usd to end at 72.02 usd.
   
BP said that output at Prudhoe Bay, in Alaska, had fallen to about a quarter of normal output because of a new technical problem. A spokesman said that output had been cut by an extra 90,000 barrels per day at the field, bringing production down to about 110,000 bpd.
   
Prudhoe Bay was already operating at about half its normal output of 400,000 bpd owing to a pipeline leak that was revealed earlier this month.
   
Concern that US oil production would be slashed had sent the price of London Brent crude oil to a record 78.64 usd per barrel on Aug 7. Prices have fallen heavily since, mainly owing to calmer Middle East tensions.

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