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

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US STOCKS-Wall Street jumps as oil drops

NEW YORK - U.S. stocks rose on Friday as a further drop in oil prices buoyed hopes that inflation will ease, stimulating spending by businesses and consumers, which would restore corporate profit growth. The slide in oil prices overshadowed news of a fourth straight quarterly loss from home finance company Fannie Mae  , pointing to more fallout from the U.S. housing slump.
   
U.S. front-month crude  dropped $3.39 to $116.65 a barrel, more than $30 below its July record high. The Dow Jones industrial average rose 54.39 points, or 0.48 percent, to 11,485.82. The Standard & Poor's 500 Index climbed 5.33 points, or 0.42 percent, to 1,271.40. The Nasdaq Composite Index gained 19.11 points, or 0.81 percent, to 2,374.84. A short time later Nasdaq rose 1 percent.

US productivity in the second quarter of 2008 rose less than expected and hit its slowest pace since the last quarter of 2007, the Labor Department said today in a preliminary report. Nonfarm productivity increased at an annual rate of 2.2% in the second quarter, less than the 2.7% gain expected by economists polled by Thomson's IFR Markets.
   
The 2.2% increase reflected a 1.7% jump in output and a 0.5% decline in hours worked. Unit labor costs rose 1.3% as expected, down from the 2.5% increase in unit labor costs in the prior quarter.
   
Over the last four quarters productivity is up 2.8%, and unit labor costs are up 1.5%. In the manufacturing sector, productivity fell at a 1.4% annual pace in the second quarter, as output fell faster than hours worked. Unit labor costs for manufacturers rose 6.1% in the quarter, the largest increase seen since the
fourth quarter of 2006.

Shares of McDonalds Corp. rose in premarket trading Friday after the company reported July sales that Deutsche Bank said were strong. The fast food giant reported global comparable sales growth of 8% in the month, above Deutsche Bank's estimate of 6%.

McDonalds also posted global systemwide sales growth of 15.9% in July. By area, same-store sales were up 6.7% in the United States, while comparable European sales rose 7.6% and comparable sales in Asia Pacific, the Middle East and Africa (APMEA) gained 7.2%.
  
Deutsche Bank said the results "were strong across each region, though the US was a particular standout on the upside." Even though the APMEA results were below its expectation of 9% growth, Deutsche Bank said they were "still a strong result overall."
   
The firm kept its hold rating on the company, noting that the shares were near its $63 price target. "However, McDonalds clearly continues to be one of the few consistent performers in a challenging consumer sector," it said.
   
Shares of McDonalds, a Dow component, rose 1% to $62.50 ahead of the bell. They closed Thursday at $61.86.

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Forex - Dollar continues to surge higher amid fears for non-U.S. economies

LONDON - The dollar continued to surge higher, hitting fresh five-month highs against the euro and a 17-month high against the pound, as the market turned its attention the the fragile outlook for economies other
than the U.S.
   
The euro zone in particular is hitting the headlines, with concerns growing that the region could be heading for recession. Figures out of Italy on Friday showed GDP growth fell by 0.3 percent in the second quarter compared with the first three months of the year, raising fears that growth figures for the whole of the euro zone could also be moving towards negative territory.
   
"Next Thursday we will see the release of GDP data for a few other euro zone economies including France, Germany, Spain and the total euro area. Today's data seems to have set the tone nicely for the rest of the countries and as such be prepared to see total euro area growth to fall into negative territory as well," said Blerina Uruci at Thomson Reuters IFR Markets.
   
ECB president Jean-Claude Trichet's press conference on Thursday, following the decision to leave rates unchanged at 4.25 percent, did nothing to alleviate the market's concerns. Trichet said he expects growth in the second and third quarters of the year to be considerably lower than that seen in recent years, but stressed a recovery should be in progress by the end of the year.
   
At 1152 GMT, the euro was trading at $1.5116, down from $1.5161 at 0826 GMT. The single currency earlier hit a five-month low of $1.5101. Analysts noted, however, that the dollar's gains have been based on the weaker outlook for the rest of the world, not on any significant improvement in the outlook for the U.S. itself. As such, the dollar could be susceptible to profit-taking.
   
"The dollar rebound is going to be front of mind as we go into the weekend break, but it's certainly worth bearing in mind that the shift in sentiment is being driven by a broad-based slowdown in the other global economies rather than a rebound in U.S. fortunes per se," said Gary Thomson, head of sales trading at
CMC Markets.
   
"Any renewed upward pressure on commodity prices is also going to be worth watching as the recent move lower by oil is again lending support to the dollar but as noted with few fundamentals around to work on, currencies could remain choppy as we move into next week," he added.
   
Meanwhile, the pound also slumped against the dollar, hitting a low of $1.9215, its weakest level since mid-March last year, after further bad news out of the UK, this time showing a sharp rise in mortgage repossessions as tighter credit conditions put increasing pressure on homeowners.
   
The Council of Mortgage Lenders said the number of properties taken into possession in the first six months of the year jumped to a 12-year high of 18,900, up 41 percent from 13,400 in the second half of 2007 and representing 0.16 percent of all loans.
   
At 1152 GMT, the pound was trading at $1.9259 against the dollar, down from$1.9285 at 0827 GMT. The euro meanwhile was trading at 0.7846 pounds, down from0.7863 at 0827 GMT.
   
Elsewhere, ongoing falls in the oil price continued to put pressure on commodity currencies, with the Australian dollar hitting a six month low of $0.8886, while the Canadian dollar hit its lowest level against its U.S. counterpart in nearly a year at 1.0680 per U.S. dollar.

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Euroshares higher midday as Dow set for gains; crude falls further

LONDON - Europe's largest exchanges  were higher midday as receding oil prices and some bullish broker notes helped to offset overnight losses on Wall Street although investors remain cautious ahead of earnings from Fannie Mae and MBIA later.

At 10:54 a.m., the DJ STOXX 50 was up 7.45 points, or 0.26 percent, at 2919.03 and the DJ STOXX 600 was 1.35 points, or 0.47 percent, higher at 288.25.

Crude prices fell back again Friday as supply concerns waned. New York's main contract, light sweet crude for September delivery dropped 1.73 dollars to 118.29 dollars a barrel.

Eni fell 1.3 percent, Total slipped 1.13 percent lower and BP was down 0.75 percent. But BG Group and Galp added 1.81 percent and 1.86 percent respectively after news oil has been discovered in yet another exploration well in the Santos basin in Brazil -- in the same block as the widely heralded Tupi.

The drilling has proved the existence of light oil in the pre-salt reservoirs with an API gravity around 30 degrees, Galp said. The contractor group includes Galp Energia with 10 percent, operator Petrobras with 65 percent and BG Group with 25 percent.

Financials remain in focus as investors try to steer their way through another mixed set of earnings. Schroders shares slipped 0.6 percent lower as the fund group said first-half pretax profit dropped to 135.7 million pounds from 185.6 million pounds a year ago.

Assets under management also fell, down to 130.2 billion pounds from 139.1 billion pounds at end-December. Royal Bank of Scotland added 2.04 percent after its second quarter update as the group's CEO said he is confident the group will hit a key capital ratio target for 2008 even if it does not sell its insurance arm, thanks to organic progress and other disposals, its chief executive said.

Aegon, up 2.06 percent, recovered some of the ground lost yesterday after its disappointing update. And Axa added to yesterday's gains as Merrill Lynch lifted its rating for the French insurance group to 'buy' from 'neutral'. Shares rose 1.87 percent.

In other broker news, Sanofi-Aventis added 3.55 percent after RBS lifted its rating on the French healthcare group to 'buy' from 'hold' and Iberia soared 3.92 percent after Citigroup upped its recommendation to 'buy' from 'hold'.

But Telecom Italia shares fell back 2.32 percent ahead of its second-quarter results statement later as La Repubblica said the group will cut its forecast for Italian yearly revenue growth to a range of 1.2 to 1.5 percent from a previous 1 to 2 percent in an earlier forecast.

And BAT fell back 3.25 percent as major shareholder Richemont will be converting its stake in the company into a Luxembourg investment vehicle, which will be listed on the Luxembourg Stock Exchange and will be renamed Reinet Investments S.C.A, the group said in a statement. Richemont said shareholders will be given 90 percent of its stake in BAT, making a bid for BAT as a whole less likely.

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Asian stock market summary

JAPAN
The Nikkei 225 Stock Average finished the session up 0.3 percent at 13,168.41, after investors moved to buy back stocks, encouraged by a weaker yen and firm performance by other Asian equities. The broader Topix ended up 0.1 percent at 1,259.93.

SOUTH KOREA
The Korea Composite Stock Price Index closed 0.30 percent higher at 1,568.72, reversing earlier losses on higher oil prices, led by exporters such as LG Electronics and Hyundai Motor, which were helped by a weaker won.

AUSTRALIA
The benchmark S&P/ASX 200 index finished up 0.06 percent to 4,986.2, on broad buying with Westpac Banking Corp Ltd advancing after assuring investors it would not suffer major loan losses. All Ordinaries closed up 0.1 percent at 5,037.6.
   
CHINA
The benchmark Shanghai Composite Index closed down 4.47 percent at 2,605.72, ahead of the Olympic opening ceremony, with a slump in Olympic-themed stocks dampening overall sentiment.
   
The Shanghai A-share Index fell 4.45 percent to 2,734.36, while the Shenzhen A-share Index was down 5.63 percent at 784.01. The Shanghai B-share Index lost 8.36 percent to 181.86, while the Shenzhen B-share Index fell 5.58 percent to 404.08.

TAIWAN
The weighted index closed up 2.63 percent at 7,209.04, as local currency weakness gave a boost to technology stocks and offset pressure from Wall Street's overnight losses.
   
Technology exporters attracted interest on expectations of increased competitiveness as the Taiwan dollar extended its decline against the US currency.

PHILIPPINES
The Manila's composite index closed up 0.3 percent at 2,692.81.

HONG KONG
The Hang Seng index closed down 218.99 points or 0.99 pct at 21,885.21, off a low of 21,690.60 and a high of 22,230.55.

INDIA

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange, closed up 50.57 points or 0.33 percent at 15,167.82 and the broader 50-share S&P CNX Nifty of the National Stock Exchange closed up 5.65 points or 0.12 percent at 4,529.50 points.
   
The Sensex closed the week 3.5 percent higher and the S&P CNX Nifty closed the week up 2.63 percent.

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Oil prices slide beneath $116

LONDON - Crude prices slumped below $116 a barrel on Friday as the market shrugged off confirmation that separatist Kurdish rebels were behind a blast that has cut a strategic oil pipeline in Turkey.

Brent North Sea crude for September delivery shed $1.91 to $115.99 per barrel in electronic deals. New York's main contract, light sweet crude for September delivery dropped $1.73 to $118.29 a barrel.

The Baku-Tbilisi-Ceyhan (BTC) pipeline at Refahiye in eastern Turkey has been on fire since the blast on Tuesday and was expected to be closed for about two weeks. The separatist Kurdistan Workers' Party (PKK) said Friday that the explosion was "an act of sabotage" by its militants, according to a report on the website of the Firat news agency, which is close to the rebels.

World oil prices had rebounded back above $120 on Thursday on news that the pipeline carrying crude from Central Asia to the West would remain shut for about 15 days. The BTC was inaugurated in 2006, carrying oil from the Caspian Sea fields to Turkey's Mediterranean port of Ceyhan, from where tankers transport the crude to Western markets.

Despite modest price gains on Thursday, the oil market has dived lower this week on mounting concern that slower economic growth in the United States would translate into lower global energy demand. On Monday, prices slumped to less than $120 a barrel in New York and London for the first time in three months, as a tropical storm looked set to miss energy installations in the Gulf of Mexico.

The U.S. government, meanwhile, reported domestic consumer spending, which fuels two-thirds of output, had cooled in June and inflationary pressures accelerated. Prices extended their slide on Tuesday as signs of a slowing global economy raised further doubts about demand.

The U.S. Federal Reserve held its short-term interest rate unchanged at 2.0 percent, citing lacklustre growth in the world's largest economy and inflation worries. The United States is the world's biggest energy user and slowing consumer spending tends to weigh on global oil demand projections.

Crude futures also lost ground on Wednesday after news of a surprise jump in U.S. oil reserves, traders said. The U.S. Department of Energy announced in its weekly report that U.S. crude reserves had increased by 1.7 million barrels in the week ended Aug. 1.

The reading caught the market off guard because expectations had been for a 200,000-barrel decline. Traders are closely tracking the level of U.S. gasoline stockpiles amid the ongoing peak-demand summer driving season, when many Americans take to the roads for their summer holidays. Oil futures have shed about 20 percent in value since hitting record highs above $147 per barrel on July 11.

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