US & World Daily Markets Financial Briefing 02-09-2008

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US STOCKS-Oil's tumble set to lift Wall St at open

NEW YORK - U.S. stocks headed for a higher open on September's first trading day on Tuesday as oil prices slid sharply, easing concerns about the outlook for consumer and business spending.

Shares of airlines, retailers and big manufacturers are all expected to benefit from lower energy costs.
Technology and financial stocks are also poised to gain as investors pull money out of energy stocks and buy beaten-down sectors, according to analysts.

Shares of UAL Corp, parent of United Airlines, rose 17 percent before the bell, while retailer Target Corp's  shares jumped 2.3 percent to $54.25.

The slide in oil prices came after a rally in the U.S. dollar and news that Hurricane Gustav had spared major Gulf oil facilities. US. crude fell 6.9 percent to $107.50 a barrel.

"The rise in stock index futures is all related to oil and the strength in the U.S. dollar," said Matt McCall, president of Penn Financial Group based in Denver, Colorado.

"What I am going to be watching is the destruction of the commodities stocks today. What we've seen over the last two months is money coming out of energy into financials and technology."

S&P 500 futures rose 12.50 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures  climbed 125 points and Nasdaq 100 futures gained 28.75 points.

Besides easing the toll of higher energy prices on the economy, lower oil prices will also buoy hopes of an easing inflationary pressures at a time when the U.S. Federal Reserve is working to revive growth by keeping interest rates low.

A sustained slide in shares of energy companies like Exxon Mobil, however, could be headwind for the broader market.

Shares of Exxon, a Dow component, were down 2.5 percent at $78.01 before the bell, but shares of UAL Corp, parent of United Airlines, rose 17 percent at $13. Among retailers, shares of Target, the No. 2 U.S. discounter behind Wal-Mart Stores, rose more than 2 percent to $54.25.

Shares of Lehman Brothers Holdings Inc were up 7.2 percent at $17.24 before the bell after state-owned Korea Development Bank (KDB) confirmed on Tuesday it was in talks with Lehman over a possible joint investment in the U.S. bank with other Korean banks.

Tuesday's economic highlight is the August reading on the manufacturing sector, due at 10 a.m. (1400 GMT), by the Institute for Supply Management. U.S. stocks tumbled on Friday, led lower by tech shares after computer maker Dell, warned that companies worldwide are cutting back on technology spending.

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Sterling extends losses, hits 2 1/2-yr low vs dollar

LONDON - Sterling hit a 2 1/2-year low against a resurgent dollar on Tuesday, as the beleaguered UK currency's battering continued amid a view of a UK economy on the brink of recession. A hefty fall in oil prices boosted the dollar across the board, putting the pound under more selling pressure after weekend comments from the UK finance minister that economic conditions are at their worst in 60 years.

"Cable is caught up in a broader dollar move today due to falling oil prices," said Chris Turner, head of currency strategy at ING. "We're seeing another leg of dollar strength," he said, adding that the pound's near 9 percent drop against the dollar in August was doing little to hold traders back from further pummelling the UK currency so far this week.

Traders were broadly dismissive of a government plan to rescue an ailing housing market which has plagued the economy, a view that also helped drive pound to a 12-year low against a basket of currencies, while lifting the euro to a record high.

As part of the plan, the UK Treasury said it would waive a home purchase tax for properties worth less than 175,000 pounds for the next year in an attempt to boost buying in a struggling housing market. Analysts were sceptical that such moves would help the housing sector and wider economy, much less the pound, particularly after the Organisation of Economic Co-operation and Development on Tuesday forecast that the UK economy would fall into a recession in the second half of the year.

The OECD singled out the British economy as the only one of the G7 industrial powers expected to contract in both the third and fourth quarters, which defines a recession according to a generally held view in economics.

A struggling economy has raised the argument for the Bank of England to lower interest rates, but the central bank is wary of doing so due to ongoing inflation pressures, which are seen keeping the economy weak and hurting the pound.

Sterling fell more than a full percent to $1.7784 to clock its weakest since April 2006. At 1048 GMT it traded at $1.7810. Selling in the pound has been relentless following steep falls in August that marked the UK currency's biggest monthly loss versus the dollar since crashing out of the European Exchange Rate Mechanism in late 1992.

Against a basket of currencies of UK trading partners, the pound fell to 88.5, its weakest since October 1996, while the euro edged up to a record high 81.62 pence. "No one wants to catch a falling knife, and sterling is that falling knife," said Divyang Shah, chief strategist at CBA.Boosting the dollar across the board was a fall in U.S. crude oil prices CLc1 to their weakest since April due initial signs that a weakened Hurricane Gustav had spared major oil facilities in the U.S. Gulf [O/R].

UK Chancellor of the Exchequer Alistair Darling's optimism on Tuesday that the nation would survive current economic difficulties offered little relief to sterling, which has been clobbered following a pessimistic economic outlook he issued in an interview published at the weekend.

Darling on Tuesday said that his comments that economic conditions were at their worst in 60 years were a reiteration of previous statements on the global economy, while acknowledging that the UK currency had been falling for more than a year.

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European shares gain as oil slumps; airlines soar

LONDON -  European shares were higher midday on Tuesday as a sharp fall in oil prices helped to ease inflation worries, boosting banking and airline stocks.
      
At 1055 GMT, the FTSEurofirst 300 index of top European shares was 0.6 percent higher at 1,196.964, recovering from a day's low of 1,182.7, and down from a high of 1,201.57.
       
Oil  sank nearly $9.50 a barrel to around $106, hitting its lowest since early April, before recovering to $108. The initial signs are that a weakened Hurricane Gustav spared major oil facilities in the Gulf of Mexico. Airline stocks gained on the lower oil price, with Lufthansa  up 4.5 percent, British Airways  up 6 percent, and Air France KLM  up 6.4 percent.
      
Travel operators were also helped by the lower oil price, with Thomas Cook Group  up 7 percent and Carnival  up 4.2 percent.  "Lower oil prices certainly help the market," said Mike Lenhoff, strategist at Brewin Dolphin. "Lower inflation will pave the way for cuts in interest  rates.
      
"Another thing that has helped is weaker sterling. It's come off 10 percent since July, and there are a lot of dollar earners in the FTSE 100, and they can pay out bigger dividends."
      
Across Europe, Britain's FTSE rose 0.1 percent, Germany's DAX gained 1.4 percent, and France's rose 1.2 percent. Asian stocks closed higher, and index futures indicated a strong opening on Wall Street. The FTSEurofirst 300 has fallen 20 percent so far this year, hammered by big losses at banks due to the global credit crisis, and the resultant slowing of the economy.
       
Automobiles notched up strong gains, benefiting from the euro hitting a seven-month low against the dollar. German car maker Daimler  ticked up 5.3 percent, while peer BMW  rose 4.3 percent, and France's Renault  gained 3 percent.
      
German exchange operator Deutsche Boerse  rose 6.4 percent after its two biggest shareholders said they would work together to explore all options for shareholder value creation. In the UK banking sector, Barclays  was up 3.5 percent on reports the group was in talks to sell 50 percent of its Spanish insurance and pension business.
       
Alcatel-Lucent  fell 2 percent after the world's top provider of fixed-line telecoms networks named a new management team.  Lower oil and metals prices took their toll on energy and mining stocks and limited the index's gains.
      
BP , Total , StatoilHydro  and Royal Dutch Shell  fell between 1.9 and 3.8 percent. Tullow Oil , down 5.3 percent, was the biggest loser on the index.  Rio Tinto  was also a big drag on the index, with a fall of 4.2 percent.

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Asian stock market summary

JAPAN
The benchmark Nikkei 225 Stock Average fell 1.8 percent to 12,609.47 on Tuesday, reversing earlier gains after investors reassessed Prime Minister Yasuo Fukuda's surprise resignation. Declines in other Asian markets dampened market sentiment and accelerated falls in afternoon trading.
   
The broader Topix index dropped 1.5 percent to 1,212.37.
  
SOUTH KOREA
The Korea Composite Stock Price Index closed 0.52 percent lower at 1,407.14, as foreign investors continued to bail out of the troubled market.

AUSTRALIA
The benchmark S&P/ASX 200 index ended 2.3 points lower at 5,116.0, with weakness in the big miners on lower metals prices offsetting gains in the top banks on a well-flagged domestic rate cut.
       
CHINA
The benchmark Shanghai Composite Index closed down 0.87 percent at 2,304.89, with investors remaining worried about a slowdown in economic growth after weak data on Monday.
   
The Shanghai A-share Index was down 0.88 percent at 2,419.50, while the Shenzhen A-share Index fell 0.32 percent to 665.32.

The Shanghai B-share Index rose 0.31 percent to 148.81, while the Shenzhen B-share Index fell 0.23 percent to 378.35.

TAIWAN
The weighted index closed down 1.66 percent at 6,699.82, as technology firms remained weak on fears of a demand slowdown and following Hon Hai Precision Industry's disappointing first-half earnings.

HONG KONG
The benchmark Hang Seng Index closed 136.15 points higher at 21,042.46 after dropping to 20,595.59 earlier.

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Oil falls to $108 as Gustav fades

LONDON -  Oil slid to around $108 a barrel on Tuesday after early reports showed Hurricane Gustav had spared major U.S. Gulf oil facilities.
      
U.S. crude  was $107.96 a barrel by 1051 GMT, down $7.50 from Friday's close. It touched a session low of $105.46, its lowest since April 2.  A U.S. public holiday on Monday meant the New York Mercantile Exchange did not issue an official settlement price for U.S. crude on Monday.
      
London Brent crude  was down $2.56 at $106.85.  As the hurricane was downgraded to a tropical storm, the market refocused on bearish factors including a softer global economy, weaker demand for oil and a stronger U.S. dollar.
  
These had already begun to drive prices down from a peak of $147.27 a barrel hit on July 11.  Hurricane Gustav, combined with Russia's conflict with Georgia, which disrupted flows of oil and gas, had halted the slide.
     
"If it were not for these threats, we would have been testing $100 already," said Mike Wittner of Societe Generale.  An upturn in the dollar, plus falls in oil demand in the United States and China, the world's top two energy consumers, look set to exert further pressure on the market.
     
The weak dollar contributed to oil's surge this year as investors turned to oil as a hedge. The U.S. currency has shown signs of bottoming out and hit a 10-month peak against a basket of currencies on Tuesday.
     
"Economic woes and the dollar strength will help oil move down. It's highly likely to go below $100," said Christopher Bellew of Bache Commodities Limited.
       
Early checks by some U.S. refiners reported no damage from Gustav, which had originally been classed as the biggest threat to the U.S. Gulf oil sector since devastation from Hurricane Katrina in 2005. Some 1.3 million barrels per day of offshore oil production and some 2.67 million bpd of refining capacity was shut because of the storm.
     
The Gulf is home to a quarter of U.S. oil output and more than a third of U.S. refining capacity. Louisiana Governor Bobby Jindal said on Monday that Exxon Mobil Corp  would ask for crude oil from the U.S. emergency supply on Tuesday and Shell Oil Co  was expected to make a similar request.

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