US & World Daily Markets Financial Briefing 04-03-2009

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US Stocks Climb, Inspired By China's Rally 

U.S. stocks climbed from 12-year lows Wednesday as a market rally in China gave investors some hope for the global economic outlook.

Shortly after the opening bell, the Dow Jones Industrial Average was higher by about 79 points to 6805. The S&P 500 was up by 1.2%, pushed higher by gains in its basic-materials, energy and financial sectors. The Nasdaq Composite Index also gained about 1.4%.

Overseas, China's Shanghai Composite surged more than 6%, pushed higher by a strong reading for a gauge of Chinese manufacturing sentiment and hopes for further economic stimulus efforts from the National People's Congress, which begins on Thursday. In Europe, companies with exposure to China's economy, including miners like Rio Tinto and Anglo American, helped pull markets up. U.S. shares of those companies gained about 8% each.

Enthusiasm about China's prospects also helped push up commodities prices, with crude-oil futures climbing above $43 a barrel. Copper prices also jumped.

Fresh economic data in the U.S., by contrast, were bleak. ADP's report on employment showed the private sector shed 697,000 jobs in February. But the report left little impression on the market. Treasury prices dropped sharply as the massive incoming supply of new government debt remained investors' chief concern. The dollar was stronger against both the yen and the euro.

Also helping to improve market sentiment, the Treasury Department revealed greater details about the Obama administration's mortgage-modification plan. Many traders had complained in recent weeks that the government hadn't given investors enough information about its efforts to help struggling homeowners.

U.S. Bancorp, viewed by analysts as one of the healthier banks amid the credit crisis, said before the open that it would cut its quarterly dividend 88% to five cents a share, joining peers such as J.P. Morgan Chase in reducing payments to shareholders as investors place a greater premium on capital preservation. U.S. Bancorp shares were higher by more than 3%.

Chairman and CEO Richard K. Davis said that U.S. Bancorp was cutting the dividend "from a position of strength" as it looks to expand its business. "We are benefiting from a flight to quality as we continue to lend, acquire deposits and grow our fee-based business," he added.

Among other stocks - watch, shares of MGM Mirage fell nearly 12% after the casino operator warned that it could violate its debt covenants this year and be in danger of default if economic conditions continue to erode. MGM said it will delay filing its annual report and that its auditor is likely to raise doubt about its ability to continue as a going concern.

Joy Global posted a bigger-than-expected 21% rise in fiscal first-quarter net income amid strong U.S. sales, but the heavy-duty mining-equipment maker continues to expect lower demand as customers scale back projects. Shares jumped 11%, swept up in the rally for commodities-related names.

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Euro Hits Session High After 15-Wk Low Vs Dlr
 
The euro hit a session high against the dollar early in New York, bouncing off a 15-week low, as U.S. stock futures swung up.

Still, its highest mark Wednesday is below late day-earlier trading levels. Risk appetite rebounded on hopes that China could lead a worldwide economic rebound following promising data and ahead of the National People's Congress.

Data overnight showed China's Purchasing Managers Index, a gauge of nationwide manufacturing activity, rose to 49 in February from 45.3 in January, offering tepid signs China may be nearing a bottom amid the domestic economic gloom.

In addition, the market is considering the possibility of further stimulus measures from the coming meeting of local, provincial and national leaders in China, though some say these expectations are too much.

The euro climbed to $1.2566 from $1.2457, its lowest level since Nov 21.

Weakness in the euro versus dollar this week, said analysts at Credit Suisse, "is consistent with eroding euro vs. U.S. yield differentials."

Meanwhile, the dollar is also up vs. the yen, building on a one-month advance. It is reaching for 100 yen and rose as high as Y99.48 overnight, matching a Nov. 10 top.

Ahead Wednesday, traders are awaiting the release of the February ISM Non-Manufacturing Index at 10 a.m. EST.

Wednesday morning in New York, the euro was at $1.2548 from $1.2572 late Tuesday, and the dollar was at Y99.41 from Y98.27, according to EBS. The euro was at Y124.72 from Y123.53. The U.K. pound was at $1.4115 from $1.4075, and the dollar was at CHF1.1784 from CHF1.1753 Tuesday.

Market sentiment was initially struck overnight by a surprising gloomy fourth quarter gross domestic product for Australia. It showed the economy contracted by 0.5%.

Elsewhere, Central and Eastern European central bankers and market regulators released a document saying they were concerned about "often simplified and misleading" information on risks facing financial sectors in these countries.

The initial statement didn't include Hungary, which made the country's forint weaken to a new all-time low against the euro, while other free-floated currencies in the region continued to post gains.

"The supervisory authorities of the following CEE Member States: the Czech Republic, Slovakia, Poland, Romania and Bulgaria express their concerns about the publicly announced initiatives warning about the risks to the old [European Union] member states' banks due to high exposures in CEE countries," the common statement said.

These concerns have plagued the euro. Meanwhile, Hungarian Prime Minister Ferenc Gyurcsany proposed in a letter to the European Commission that the European Central Bank accept local government securities from noneuro-zone member states as collateral in ECB loan operations.

Such a step would provide broader support for European banks outside the 16-country euro zone and stabilize financial markets, Gyurcsany said in a letter dated Feb. 26 to European Commission President Jose Manuel Barroso. The letter was obtained by Dow Jones Newswires.

Canada Morning
 
The Canadian dollar is little changed in narrow dealings early Wednesday but remains within sight of recent four-year lows around the C$1.3000 mark.

The Canadian currency has benefited at the margins from stronger oil prices and generally better global risk appetites, though sentiment toward the currency remains guarded after a fairly dovish Bank of Canada interest-rate statement Tuesday.

The Canadian central bank sounded less optimistic about the likelihood of a late 2009 rebound for the Canadian economy and held out the prospect of an eventual turn to quantitative easing in Canada.

Currency strategists at Scotia Capital in Toronto said that as "the prospect of quantitative easing has generally not been swallowed easily by currency markets," the Canadian central bank's mention of that possibility in Canada "is just another fundamental factor that should help keep the Canadian dollar a little more on its back foot" for the time being.

Early Wednesday, the dollar was at C$1.2887, from C$1.2902 late Tuesday.

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European Shares Bounce Off Lows

European shares swung higher on Wednesday, partially rebounding from multi-year lows, with companies exposed to the Chinese economy performing particularly well.

The pan-European Dow Jones Stoxx 600 index climbed 1.9% to 164.37 on Wednesday, taking back some of the nearly 7% losses made in the first two trading sessions of the week.

National equity markets were also higher, with the U.K. FTSE 100 index up 1.7% at 3,571.47, the German DAX 30 index up 2.6% at 3,786.31 and the French CAC-40 index up 2.1% at 2,607.09.

U.S. stock futures were also pointing to a bit of a rebound on Wednesday. Shares ended lower in the previous session, failing to bounce back from the prior session's stumble to 12-year lows.

In Asia trading, Shanghai's share index rallied Wednesday amid expectations the government would expand its economic stimulus package and official data fueled speculation of a recovery in economic activity.

Resource stocks up

Investors in Europe were buying into the mineral extractors on Wednesday, a sector that in the past has been fueled by China demand.

Rio Tinto shares climbed 8.8%, BHP Billiton advanced 7.6% and Anglo American rose 7%. "Today's China PMI backs up our view that Chinese GDP growth is more resilient than growth in the rest of the world and that China has to lead the global economy out of recession," said strategists at Credit Suisse.

The strategists said that they recommend playing the relative resilience of Chinese GDP growth via steel and consumer plays in Europe.

They like ThyssenKrupp , up 7.8%, and Salzgitter , up 9.5%. ArcelorMittal, the world's top steelmaker, added 5.9%, also helped by an upgrade to hold from sell by Citigroup. On the consumer side, Credit Suisse said Swatch , LVMH and Richemont have significant sales exposure to China.

Swatch shares rose 4.1%, LVMH shares climbed 4.5% and Richemont shares advanced 4.5%. Oil producers were also higher, as light sweet crude oil futures traded back over $43 a barrel.

Shares of BP, which fell on Tuesday after the group lowered 2012 production targets, rose 2.2%, shares of Total advanced 4% and Royal Dutch Shell shares climbed 3.8%.

UBS names new chairman
 
Banks were also strong, with Swiss banking group UBS up 3.5% after it said that chairman Peter Kurer will step down and will be replaced by Kaspar Villiger, the country's former finance minister. The move at UBS comes less than a week after naming a new chief executive.

Earnings also were generally well-received, with shares of sportswear maker Adidas up 3.8%. The firm reported that its fourth-quarter profit more than doubled to a stronger-than-forecast 54 million euros following one-off tax benefits and lower marketing expenses.

Share of France Telecom (FTE) climbed 1.9%.

The firm reported a 35% drop in 2008 net profit as it wrote down the value of goodwill and paid more tax, but lifted its dividend and said it expects to generate 8 billion euros a year in free cash flow until 2012.

Still, shares of staffing firm Adecco fell 9.2%. It swung to a fourth-quarter net loss of 22 million euros and warned that, due to continually difficult job markets, it will need to sharply cut costs in 2009.

The loss came in well below analysts' average forecasts for a profit of 90 million euros after Adecco took a 116 million euro impairment charge.

Competitor Michael Page fell 4.2% in London.

Credit Agricole shares fell 2.8% as the French banking giant posted a 309 million euros net loss for the fourth quarter, dragged down by its ailing Greek business and declining market valuations.

In the insurance sector, Zurich Financial Services jumped 6.3% after J.P. Morgan upgraded the firm to overweight from neutral. "We believe the solvency position is strong and therefore its shares should catch up some lost ground with Munich Re ," the broker said while downgrading Munich Re to neutral, citing valuation. Munich Re shares declined 0.4%.

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Crude Rises On Oil Inventory Draw Expectations

Crude oil futures traded higher Wednesday on growing anticipation that Department of Energy data would show a draw on U.S. oil inventories.

Light, sweet crude for April delivery traded $2.80, or 6.7%, higher at $44.45 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded $2.05, or 4.7%, higher at $45.75 a barrel.

The American Petroleum Institute reported a 600,000-barrel decline in oil inventories for the week ended Feb. 27, where analysts had given an average forecast of a 1-million-barrel build in a Dow Jones survey. If confirmed by Department of Energy data due out Wednesday, a draw would be the second in three weeks, following months of nearly continuous builds.

Tightening oil inventories would signal to the market that the Organization of Petroleum Exporting Countries has cut production enough to match weakening demand. The group is scheduled to meet on March 15, and several members have called for another cut.

But the declining oil supply overhang may soon be overshadowed by the activities of several large funds that invest in the market. The funds use money from share purchases to buy long positions, or bets that oil prices will rise, in the front-month contract.

Over four days starting on March 6, the United States Oil Fund LP, the largest of these investors, will "roll" its positions by selling April futures and buying May contracts. Last month, USO's roll, then taking place over one day, is widely seen as significantly widening the March contract's discount to April.

"The rolls begin at some point from Friday on into next week, so you might see some pressure in the marketplace at that point," said Tony Rosado, a broker with GA Global Markets in New York.

Analysts see gasoline inventories falling by 600,000 barrels and distillates, including heating oil and diesel, are expected to decline by 400,000 barrel. Refinery utilization is seen rising by 0.1 percentage point to 81.5% of capacity.

Front-month April reformulated gasoline blendstock, or RBOB, recently traded up 4.45 cents, or 3.4%, at $1.3639 a gallon. April heating oil traded 4.39 cents, or 3.7%, higher at $1.2235 a gallon.

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Top Energy Stories Of The Day

CRUDE UP ON CHINA DATA, US INVENTORIES EYED
Crude oil futures extend Tuesday's gains, boosted by Chinese manufacturing data and stronger equity markets, as participants adjust positions ahead of weekly U.S. oil inventory readings.

 
BP AFFIRMS DIVIDEND PAYOUT AMID PINCH
BP says it is able to continue investing in future production and pay dividends to shareholders despite a falling oil price that is squeezing the finances of some of the West's biggest oil companies.

 
VENEZUELA TO CUT OIL CONTRACTS AS PRICES FALL
Venezuela says it will seek to renegotiate contracts with oil-service companies and force food producers to make basic items covered by the government's price-control policies - moves that point to increased economic strain.

 
UNION FENOSA TO REARRANGE BOARD
Spain's Union Fenosa will hold a board meeting to decide board membership changes following Gas Natural's takeover of Fenosa, a Fenosa press official says.

 
PETROVIETNAM BUYS 49% STAKE IN RUSVIETPETRO
State-run Vietnam Oil and Gas Group, or PetroVietnam, buys a 49% stake in the Russia-based Rusvietpetro Joint Venture, the southeast Asian nation says.

 
OIL INVENTORY BUILD EXPECTED
Analysts expect U.S. crude oil inventories to rise by 1 million barrels for week ended Feb. 27. Gasoline inventories are seen falling by 600,000 barrels, while stocks of distillate, which includes heating oil and diesel, are expected to fall by 400,000 barrels.

 
NIGERIAN OIL THEFT TAKES TOLL ON PRODUCERS, JOBS
Saboteurs are driving oil-industry jobs out of the Niger Delta, but some of the oil thieves are on a hiring spree of their own, with the amount of oil stolen countrywide valued at about $1.5 billion a year.

 
OIL REFINERS FACE A SQUEEZE
Spring cleaning comes early for oil refiners. Faced with weak demand, U.S. refiners are moving up seasonal maintenance, shutting units for work and reducing production of gasoline, diesel and other fuels.

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