US & World Daily Markets Financial Briefing 05-08-2008

 
In early deals on Wall Street, the DJIA was 163.00 points higher at 11,447.20, while the broader S&P 500 index took on 16.30 points at 1,265.30, and the Nasdaq composite index gained 29.92 points at 2,315.48.
   
U.S. investors were awaiting the outcome of the Federal Reserve's meeting on interest rates, although the central bank is expected to keep its benchmark federal funds rate steady at 2 percent.
   
As always, however, investors will be keen to see what the Fed says about future rate moves in the statement issued after the meeting.
   
Investors also kept a keen eye on oil prices, which plunged to their lowest level in three months on Monday. Crude fell another $1.51 to $119.90 in pre-market trading on the New York Mercantile Exchange.

US July ISM non-manufacturing index rises to 49.5 vs 49.0 expected
      
WASHINGTON  - Activity in the U.S. service sector rose more than expected in July but still remained stuck in contraction territory for the month, according to the Institute for Supply Management's (ISM)
non-manufacturing index.
   
The ISM July index was 49.5, above the 49.0 median expectation of economists polled by Thomson IFR Markets. The July figure is up more than a point from the 48.2 seen in June. A reading above 50 indicates growth, below 50 contraction.    

The overall business activity index fell to 49.6 from 49.9, and the new orders index fell to 47.9 from 48.6.
   
Offsetting these declines were an increase in the July employment index, which rose to 47.1 from 43.8, and the supplier deliveries index, which rose to 53.5 from 50.5. The index gauging new export orders also fell to 47.5 from 52.0.
   
The prices paid index fell to 80.8 from 84.5, indicating that service providers felt less price pressure than they did in June.

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U.S. dollar hits 6-week high vs euro ahead of Fed interest rate decision

LONDON - The dollar rose to a six-week high against the euro, helped by falls in oil prices and as market players awaited Tuesday's Federal Reserve interest rate decision.

The Fed is fully expected to leave interest rates on hold at 2.00 percent as a slowing economy prevents the central bank from raising interest rates in order to tackle soaring inflationary pressures. Hopes are growing, however, that the rate-setting Federal Open Market Committee will release a hawkish statement to accompany its decision.

"The dollar is currently supported by expectations that the statement could sound more hawkish," said Commerzbank analyst Ulrich Leuchtmann.

The statement is expected to reiterate that the downside risks to growth have diminished, particularly following some better-than-expected U.S. data recently.

Meanwhile, the dollar is also gaining from sharp falls in oil prices, which are now trading at around $119 per barrel, on hopes that this will help prop up the U.S. economy.

The oil price falls have also benefited the yen -- as Japan must import 100 percent of its oil -- and weighed on commodity currencies, with the Australian dollar slumping to a four-month low against its U.S. counterpart of $0.9169.

Meanwhile, the euro also suffered as the final reading of the euro zone service sector PMI confirmed activity contracted for the second month running during July.

The RBS/Markit Eurozone Purchasing Managers Index for services companies fell to 48.3 from 49.1 June, well below the 50.0 mark that separates growth from contraction and adding to the mounting evidence that the euro zone economy is slowing sharply.

"The sharper contraction in service sector activity in July adds to the mounting evidence that the euro zone economic downturn is deepening," said Howard Archer at Global Insight. The news was compounded by data showing a sharp fall in euro zone retail sales during June.

At 1130 GMT, the euro was trading at $1.5475, down from $1.5501 at 0843 GMT.

Elsewhere, the pound also fell to a six-week low against the dollar after figures showing a bigger than expected fall in industrial and manufacturing production during June raised the prospect of a downward revision to UK second quarter GDP figures.

"The ongoing contraction in the (manufacturing) sector is looking more ominous given the deteriorating situation in the euro zone, the UK's major export market," said Daragh Maher at Calyon, adding that it suggests the sector will "remain in the doldrums for some time to come".

The news was somewhat offset, however, by a stronger-than-expected service sector PMI survey, which unexpectedly rose to 47.4 in July from a seven-year low of 47.1 in June.

At 1130 GMT, the pound was trading at $1.9530 against the dollar, down from $1.9551 at 0840 GMT, while the euro was trading at 0.7921 pounds against 0.7924 pounds at 0840 GMT.

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Euroshares advance midday as Dow seen up; on oil price fall, earnings news

Europe's leading exchanges made strong advances in midday deals as the Dow is set to rise in opening deals, and boosted by some upbeat earnings statements and M&A news.

At 12.09 a.m., the DJ STOXX 50 was up 50.99 points, or 1.81 percent, at 2,874.93 and the DJ STOXX 600 was up 5.22 points, or 1.88 percent, at 282.81.

In Europe, Societe Generale reported a 63 percent fall in second-quarter net profit on Tuesday to 644 million euros -- but well above the 518 million euros the market had been looking for.

Gross operating profit fell 42 percent to 1.627 billion euros, also ahead of an average forecast of 1.333 billion. Shares added 6.67 percent as analysts described the update as "reassuring". Credit Agricole added 4.6 percent as analysts said the report was good news for SocGen's peers.

Standard Chartered added 4.64 percent after the group's first-half results beat analysts' forecasts.

Barclays stormed 7.22 percent higher after news that Swiss Re agreed to buy the UK bank's life assurance arm for 753 million pounds to boost its Admin Re business in the United Kingdom.

And shares in the Swiss insurance group moved up 1.76 percent after it reported better than expected second-quarter numbers.

Shares in Franco-Dutch airline Air France-KLM rose 7.01 percent after the airline operator announced a smaller than expected fall in net profit for its first quarter to June and maintained its full-year EBIT guidance at 1 billion euros.

Sales were slightly above forecasts and net profit was above consensus though in line with Cheuvreux's estimate, the French broker's analysts said in a note to clients.

Adidas hiked its guidance for full-year gross margin -- a measure of profitability -- to more than 48 percent, compared with a previous forecast between 47.5 percent as the group reported better than expected second-quarter net profit. Shares added 7.3 percent.

Danish brewer Carlsberg climbed 13.95 percent amid widespread relief after it reported a better than expected set of second-quarter earnings. Lehman Brothers resumed coverage with an 'overweight' stance.

Diageo added 2.45 percent after reports that Inbev could be interested in buying the group, although not immediately.

In other M&A news, Michael Page climbed 33.08 percent as the group confirmed it has received an unsolicited approach from Adecco, up 5.42 percent.

The Independent said on Tuesday morning the Swiss staffing group is preparing a bid of between 350-375 pence per share but the UK group said the offer was unsolicited.

Peers USG People, Hays and Brunel added 6.03 percent, 15.03 percent and 4.03 percent respectively as some said Michael Page's apparent hostility to its suitor's approach opens up the possibility that Adecco will be forced to shift its affections elsewhere.

Oils fell as the price of crude dropped to a three-month low and back below $120 per barrel, as investors focused on rising OPEC supply and declining demand in the United States and Europe.

Future dated crude on the Nymex was $1.80 lower at $119.61 per barrel, well below the July 11 record high of $147.27 per barrel.

Total fell 1.75 percent, ENI was 0.86 percent lower and Repsol was down 0.25 percent.

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Asian stock market summary

Japan   

The Nikkei 225 Stock Average finished lower for the third straight day, down 0.1 percent at 12,914.66, following sustained losses on Wall Street.
   
Investors were cautious ahead of interest rate decisions by the Federal Reserve later on Tuesday and the European Central Bank  on Thursday. The broader Topix was ended down 0.04 percent at 1,247.71.

South Korea
   
The Korea Composite Stock Price Index closed 0.49 percent lower at 1,535.54, led by steel-makers and shipbuilders as persistent worries about slower demand for heavy industrial goods weighed on the sector, while banks rebounded after their latest losses.
 
Australia
   
The benchmark S&P/ASX 200 index finished 1.4 percent lower at 4,820.4, as concerns about slowing global demand hit oil and metals prices, sparking steep declines in heavyweight resource firms such as BHP Billiton Ltd. The All Ordinaries closed down 1.5 percent at 4,882.0.

China
   
The benchmark Shanghai Composite Index closed down 1.86 percent at 2,690.75, led by coal firms and metals stocks after a sharp decline in commodity prices.
   
The launch of IPO subscriptions for China South Locomotive & Rolling Stock helped to depress trade by draining funds out of the secondary market.
   
The Shanghai A-share Index was down 1.85 percent at 2,822.82, while the Shenzhen A-share Index fell 3.06 percent to 829.26. The Shanghai B-share Index fell 4.17 percent to 199.20, while the Shenzhen B-share Index lost 3.63 percent to 433.83.

Taiwan
 
The weighted index closed down 2.35 percent at 6,813.40, as steel and cement stocks slumped following a drop in metals and other commodity prices overnight amid worries over the global economy.
   
Volumes were light ahead of the outcome of a US Federal Reserve policy meeting on Tuesday.

India

Indian shares ended near a day's high as world crude oil prices dipped below $120 a barrel, with banks real estate and auto companies leading the rally.
   
India's main stock index, the 30-share Sensex of the Bombay Stock Exchange, closed 383.20 points or 2.63 percent up at 14,961.07, while the broader 50-share S&P CNX Nifty of the National Stock Exchange ended 107.50 points or 2.45 percent to 4,502.85.

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Copper hits 6 month low on rising stocks, commodity sell-off

LONDON - Copper plummeted to a six month low on rising stocks, a soft technical picture and as several commodities across the board fell, which dampened sentiment.

The red metal is leading some other base metals lower, while platinum is near a seven month low, gold is down after hitting a fresh six-week low and oil is trading beneath $120 and copper down after losing 4 percent Monday. The stronger dollar is weighing heavily on commodities amid the slow demand summer season. The dollar was higher as investors also braced for the Federal Reserve's policy decision later in the day with the focus on the central bank's post-meeting statement for clues on the monetary policy outlook.

LME copper stocks rose 2,550 tonnes to 148,750, up over 20 percent in the past month and their highest since February.

"While this is arguably a seasonal build up ... the dominant warrant holder in copper has failed to keep pace with rising inventory, allowing its position to slip," said analyst Leon Westgate at Standard Bank in a research note.

At 11:19 a.m., three-month copper on the LME was trading at $7,625 per tonne from $7,605 at the close Monday. Earlier in the session copper hit $7,530 per tonne, its lowest value since February 2.

"Bear market trading continues prompting metals prices to fall further across the board with platinum, copper and gold seen as major losers. The selling across the board for commodities and mining equities alike looked like a bear raid," said John Meyer, Fairfax analyst. "While metals prices are vulnerable to falls in the current environment we believe the market should see a significant rally in September as consumers and traders rebuild stock levels to support ongoing global industrial activity."

Elsewhere on the LME, aluminium was at $2,888 per tonne from $2,882, nickel dropped to $17,725 per tonne from $18,025, zinc was at $1,775 per tonne from $1,767, tin tumbled to $20,150 per tonne from $20,600 and lead ticked up to $2,005 per tonne from $1,995 at the close Monday.

Platinum hits lowest since Jan, dollar pressures commodities

LONDON - Platinum hit its lowest level since January on falling demand from automakers and as several commodities across the board fell, which dampened sentiment.

The precious metal was hit by worries about a slowdown in the car industry after U.S. car sales slipped to a 16-year low in July, led by a 27 percent drop at General Motors Corp.

"Further liquidation is not out of the question, we believe," said HSBC analyst James Steel. "That said, even if automotive demand for platinum remains sluggish, prices at $1,500/oz should be attractive to jewellery manufacturers. Renewed physical demand from the jewellery and non-automotive sectors may stabilize the platinum market."

At 9:56 a.m., spot platinum fell to $1,539 from $1,562 per ounce Monday. Earlier, the metal hit $1,534 per ounce, its lowest price since January this year.

Elsewhere, a strong dollar pressured most commodities lower, with gold down after hitting a fresh six-week low, oil trading beneath $120 and copper down after losing 4 percent Monday.

Gold was trading at $882.00 from $899.50 in late New York trading hours on Monday. Elsewhere, silver was down at $16.66 from $17.12 per ounce late Monday. while palladium eased to $341 from $354 per ounce.

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