US & World Daily Markets Financial Briefing 06-06-2008

Stocks fall sharply on jobs data, surge in oil

NEW YORK - Wall Street tumbled Friday after the government reported a jump in unemployment that was much larger than the market anticipated and as oil prices surged more than $6 a barrel. The Dow Jones industrial average gave up more than 240 points.
   
The decline in stocks also helped move bond prices sharply higher as investors sought a more secure place for their money.
   
The Labor Department said the nation's unemployment rate rose to 5.5 percent in May from 5.0 percent in April. The rate, logging its biggest monthly rise since February 1986, is now at its highest level since October 2004. Wall Street, on average, had predicted an uptick to 5.1 percent.
   
The number of U.S. jobs shrank by a smaller-than-expected 49,000, but that figure offered Wall Street only a little solace given that May marked the fifth straight month of jobs losses. Signs that the U.S. job market is deteriorating more than anticipated could thwart investors' hopes that the economy is poised for recovery later this year -- a belief that has helped lift the stock market higher over the past couple months.
   
Employment data are important to investors because when Americans lose their jobs -- or fear that they might -- they tend to pare discretionary spending. Already, consumers are spending less due to soaring food and energy prices, and oil's ascent Friday added to the market's trepidation. A slowdown could deal a big blow to the economy as consumer spending accounts for more than two-thirds of U.S. economic activity.
   
Crude oil has made an aggressive rebound this week, rising more than $7 a barrel in two days after falling amid a drop in demand for gasoline. Light, sweet crude jumped $5.91 to $133.70 a barrel on the New York Mercantile Exchange after reports that a Morgan Stanley shipping analyst predicted oil would jump to $150 a barrel by July 4.
   
In midmorning trading, the Dow fell 240.19, or 1.91 percent, to 12,364.26.
   
Broader stock indicators also declined. The Standard & Poor's 500 index fell 20.72, or 1.48 percent, to 1,383.33, and the Nasdaq composite index fell 37.93, or 1.49 percent, to 2,512.01.
   
Friday's pullback comes a day after the Dow jumped nearly 214 points, showing its largest daily point gain since April 18 following better-than-expected sales from retailers and a dip in jobless claims. The good economic news helped investors shrug off the more than $5-a-barrel spike in oil prices. But the further advance in oil on Friday appeared too much for investors to overlook.
   
Bond prices moved higher after the weak jobs data. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.97 percent from 4.04 percent late Wednesday.
   
Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 189.6 million shares.
   
The Russell 2000 index of smaller companies fell 11.10, or 1.45 percent, to 752.17. Britain's FTSE 100 fell 0.22 percent in afternoon trading, Germany's DAX index fell 0.88 percent, and France's CAC-40 declined 1.22 percent.

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Dollar falls as U.S. unemployment rate jumps

The dollar was pushed lower by news of dismal U.S. job creation, with the unemployment rate jumping by its largest amount in 22 years.
   
The much awaited U.S. jobs report showed unemployment rate surging to 5.5 percent from the 5.0 percent reported in April, sharply higher than the 5.1 percent rate expected by economists polled by Thomson Reuters IFR Markets.
   
That is the largest monthly change since February 1986, when it also rose 0.5 percentage points. The economy lost 49,000 jobs in May, a smaller loss than 60,000 decline expected from the payroll survey, but markets focused on the unemployment rate by selling off the greenback.
   
"Today's unemployment report was the first time in recent memory that the unemployment rate overshadowed the non-farm payroll number," said Michael Woolfolk at Bank of New York Mellon.
   
He said markets were looking for a reason to sell the dollar against the euro, which has been buoyed by hawkish inflation talk from the European Central Bank.
   
In fact, some analysts said the underlying payrolls number is somewhat encouraging, as it shows the loss of jobs may be stabilising somewhat, whereas the unemployment rate is a lagging indicator.
   
"Our worst fears seem to have been avoided," and there is no longer any real prospect of a rate cut in the U.S. this year, said Paul Ashworth at Capital Economics.
   
That said, the economy remains very weak and enjoys little forward momentum, meaning the dollar will hardly be rallying strongly any time soon.
   
In the euro zone, meanwhile, economic data was not particularly encouraging either, with German industrial production posting a surprise 0.8 percent decline in April, much worse than analysts' expectations for a 0.2 percent increase.
   
The data is significant because it shows a real slowdown in the sector which has so far been the main engine of growth for the wider euro zone. "The boom is over. Just as the European Central Bank is shocking markets by pointing to a rate increase in July, the pillars of the economic upswing are crumbling," said Holger Schmieding at Bank of America.
   
The question at this point, Schmieding noted, is how a sharp economic slowdown could shape the ECB's policy debate.  He believes the ECB will deliver one rate cut, perhaps next month, in order to satisfy the hawks' call for action against inflation, although the magnitude of the economic downturn will prevent any more hikes after that.

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Euroshares turn lower midday as banking stocks weigh; U.S. jobs data in focus

Leading European exchanges turned lower in midday deals as losses by banking stocks and uncertainty ahead of Friday's U.S. jobless data overshadowed early indications the DJIA is set for more, if modest, gains.
   
At 11:05 a.m., the STOXX 50 was down 10.6 points, or 0.34 percent, 3108.79 and the STOXX 600 was down 0.73 points, or 0.23 percent as weak German industrial production data weighed.
   
Back in Europe, ASM International stormed 14.91 percent higher after the Dutch chip group received an offer for some of its front end operations from U.S. group Applied Materials. The U.S. group said it values these assets at $400-500 million but analysts were divided about whether this was a fair price.
   
STM moved 0.45 percent higher and Infineon climbed 2.73 percent, also boosted by still more positive feedback from its analyst conference and bolstered by news National Semiconductor issued bullish first-quarter forecasts in a statement overnight.
   
And news Nucor Corp raised its profit expectations for the second quarter pushed Arcelor Mittal up 2.65 percent and Thyssenkrupp up 2.69 percent.
   
Oil plays were also gaining after the price of crude moved higher again in Asia trade, having stormed $5.49 higher in New York on Thursday. Total climbed 1.73 percent, Repsol moved 1.66 percent higher and BG Group was up 3.59 percent.
   
But shares in Intesa Sanpaolo SpA were 2.17 percent lower in morning trade following a press report the bank could inject up to 500 million euros into troubled Italian flag carrier Alitalia SpA.
   
And UBS and Credit Suisse were down 1.73 percent and 1.98 percent respectively after SG secs downgraded the pair to 'sell' from 'neutral', saying the outlook for the investment banking sector looks difficult.The broker also repeated its 'sell' rating on Deutsche Bank, down 1.11 per cent, and cut its target to 55 euros from 66 euros.
   
Citigroup downgraded Anglo Irish Bank, down 6.08 percent, and Bank of Ireland, down 4 percent, to 'sell' from 'hold'.
   
And Ahold gave up opening gains to fall 2.44 percent, as initial enthusiasm after the group's first-quarter numbers gave way to profit taking after recent gains as analysts expressed uncertainty about the group's prospects.
   
SNS Securities analyst Richard Withagen said Ahold's results were "a bit of mixed bag", with its performance in the United States better than expected and the result in the Netherlands lower than expected.
   
"But the fact that Albert Heijn (in the Netherlands) disappointed is obviously raising questions of whether it can maintain the same high margins it has had in the previous quarters," Withagen said.

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Asian shares track Wall Street's gains; energy stocks lead advance

Asian stocks rose Friday as markets tracked overnight gains on Wall Street where investors cheered better-than-expected sales at retail giant Wal-Mart and a drop in weekly jobless claims.
   
Energy stocks led the advance after oil prices jumped over $5 a barrel on Thursday in response to a weaker U.S. dollar. The euro firmed sharply against the dollar after the European Central Bank warned interest rates could be increased as early as next month to cope with rising inflation.
   
A weakening U.S. dollar makes oil more affordable for buyers in stronger currencies. "It's looking pretty solid at the moment -- certainly what seems to be driving the gains still is the resources and energy sector," said Savanth Sebastian, an equities analyst at CommSec in Sydney. "The strength in the oil price overnight and sentiment returning to U.S. markets has seen our markets perform quite well," he said.
   
The S&P/ASX 200 was up 1.1 percent at 5,592.1, while the All Ordinaries was 1 percent higher at 5,691.2. Energy sector leader Woodside Petroleum rose 3.3 percent to A$60.58, while Santos was up 3.6 percent at A$21.35.
   
In Tokyo, a weaker yen supported exporters, driving the Nikkei index to its highest level since January. The Nikkei 225 Stock Average closed up 1 percent at 14,489.44. At one stage it hit 14,601.27 points, the highest since January 9, when the index stood at 14,602.65.
   
In Hong Kong, the Hang Seng closed up 0.6 percent at 24,402.18 with oil producers CNOOC Ltd and PetroChina Co Ltd pacing the advance.
   
CNOOC Ltd rose 3.1 percent to HK$13.38 and PetroChina gained 1.3 percent to HK$11. "(The) oil market will remain tight in light of the risks of a spike to $150 on Brent," Jonathan Garner, Morgan Stanley analyst, said in a note. Garner maintained his "overweight" call on energy stocks.
   
The Shanghai market bucked the trend, led by China United Telecommunications, which slid 4 percent on capital expenditure worries amid a restructuring in the sector. The Shanghai Composite index closed down 0.66 percent at 3,329.67.
   
Elsewhere in the region, the Philippine composite index finished up 0.8 percent at 2,739.70. Taiwan's weighted index closed up 0.08 pct at the day's low of 8,745.35.
   
Singapore's Straits Times Index rose 0.1 percent to end at 3,146.73. Indonesia's Jakarta composite closed up 0.1 percent at 2,402.24, while the South Korean market was closed for a public holiday.

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange, ended 197.54 points or 1.25 percent down at 15,572.18. The S&P CNX Nifty of the National Stock Exchange fell 49.15 points or 1.05 percent to 4,627.80. The Sensex has shed over 5 percent in the first week of June.
   
Of the 30 Sensex shares, 20 lost today, while the broader market mood was also bearish as 56.09 percent of traded stocks posted losses. The fast-moving consumer good sector, led by ITC Ltd., lost the most, followed by the realty and metal sectors.

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Copper climbs back towards $8,000 on dollar weakness, stockpile decline

Copper rebounded towards $8,000 a tonne in London on Friday on a combination of dollar weakness and falling stockpiles.
   
Renewed weakness in the dollar has sparked a broad-based rally in commodities priced in the U.S. dollar, as they become cheaper for holders of alternative currencies and more attractive as a financial hedge.
   
Oil and gold prices have moved higher on the dollar's fall, with base metals following in their wake, despite recent weakness in the metal's complex.
   
Copper prices have been spurred on by a drop in stockpiles monitored by the London Metals Exchange (LME), and Shanghai Futures Exchange.
   
Inventories monitored by the LME fell by 950 tonnes to 122,550 tonnes in Friday's report from the exchange, while Shanghai inventories were down by 13 percent, or 5,725 tonnes this week, to 38,829 tonnes.
   
At 11.53 a.m., LME copper for three-month delivery was at $7,984 a tonne from $7,815 at the close on Thursday. Earlier, the red metal hit an intra-day high of $8,013 a tonne.
   
"Copper looked poised to break the $8,000 level at one point this morning and should such a break occur, we would think more short covering will hit the market, but a failure to close above will likely keep the market on the back foot in the short-term," said Alex Heath at RBC Capital Markets in a trading note on Friday morning.
   
Metal prices have been closely linked to movements in the dollar in recent months, with some financial players buying hard commodities as a means of hedging against the greenback's decline.
   
"It looks as though the commodities are once again seeing inflation as a positive for metal prices as they offer investors some hedge against inflation," said William Adams at BaseMetals.com.
   
Tin rose to $22,400 from $21,800 a tonne. Lead traded up to $1,960 from $1,935, while aluminium was up at $2,960 from $2,899. Nickel rose to $23,250 from $22,800, while zinc rose to $1,990.25 from $1,955.

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