US & World Daily Markets Financial Briefing 09-06-2008

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Stocks mixed after last week's sell-off as oil dips

NEW YORK - Wall Street traded mixed Monday as a pullback in oil prices encouraged investors to try to recover some of last week's losses.

Crude prices dipped below $136 a barrel in early trading after shooting above $139 last week. On Friday, soaring energy prices and a huge jump in the unemployment rate sent the Dow Jones industrial average plunging nearly 400 points.

Robust data on pending home sales and McDonald's sales also gave the Dow a lift Monday. The National Association of Realtors said pending sales of existing homes rose more than 6 percent to the highest level since October, while the world's largest hamburger chain said global sales at locations open at least a year rose 7.7 percent in May.

But investors' economic worries are far from alleviated. With crude still near record levels, the big concern for the stock market is that consumers' energy bills will keep rising, and lead them to further pare back their spending on other items.

The Dow added 86.55, or 0.71 percent, to 12,296.36 after Friday's rout, which was the worst tumble on Wall Street in 15 months.

McDonald's, rising $2.47, or 4.4 percent, to $59.42, was the biggest gainer in the Dow.

Broader stock indicators were mixed. The Standard & Poor's 500 index rose 6.31, or 0.46 percent, to 1,366.99, while the Nasdaq composite index fell 9.43, or 0.38 percent, to 2,465.13.

Apple Inc. weighed on the technology-dominated Nasdaq, falling $4, or 2 percent, to $181.64, ahead of an expected introduction of the new iPhone at a conference Monday.

Also giving Wall Street pause was Lehman Brothers Holdings Inc., which said Monday it plans to raise $6 billion in new capital after posting an unexpectedly large quarterly loss of $2.8 billion. The loss was the first for the investment bank since it spun off from American Express Co. in 1994. Lehman shares fell $3.01, or 9.3 percent, to $29.28.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was rose to 3.98 percent from 3.91 percent late Friday.

The dollar rose against other major currencies, while gold prices rose.

Overseas, Japan's Nikkei stock average closed down 2.13 percent. Britain's FTSE 100 rose 0.51 percent in afternoon trading, Germany's DAX index added 0.45 percent, and France's CAC-40 rose 0.50 percent.

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Dollar off day lows as market braces for Bernanke speech

LONDON - The dollar came off day lows but remained on the back foot after last week's dismal U.S. jobs report and ultra-hawkish rhetoric from European Central Bank chief Jean-Claude Trichet.

Fed president Ben Bernanke also sounded the warning on inflation last week but while his message did boost the dollar, the fillip proved fleeting as Trichet later took the lead by putting markets on alert for a July interest rate hike.

Bernanke gets another attempt at this new competitive hawkishness between the Fed and the ECB when he makes a public appearance Monday night. Markets will be on watch as his speech is titled: "Understanding Inflation and the Implications for Monetary Policy: A Phillips Curve Retrospective".

Before that attention will be on U.S. pending home sales data, which may well push the dollar lower. Pending home sales in April are expected to have dipped to 82.6 from a level of 83.0 in the previous month.

Benedikt Germanier at UBS said: "The dollar's long overdue recovery is likely to be delayed further for now as European central banks have signalled that they need to hike interest rates again, US data points to Fed rates staying lower for longer, and risk aversion is poised to stay high with oil prices staying at current high levels."

In the current climate analysts believe the euro could easily mount another charge to $1.60.

But the euro will not hit all one way. A stiff test comes this week as Irish citizens vote Thursday in a referendum on the European Union's Lisbon Treaty. In 2005, French and Dutch voters said 'no', sparking off euro falls.

Meanwhile, on Monday, data showing that the German trade surplus continued to grow despite the strength of the common currency, had little impact.

Still, James Hughes at CMC Markets believes the data could throw further weight behind speculation that the ECB will eye a rate hike in the next month or so to keep a cap on inflationary pressures.

Germany's trade surplus in April rose to 18.7 billion euros from 16.6 billion in March and up from 15.2 billion in April last year, according to provisional figures from the Federal Statistics Office. The latest data also beat expectations of a much smaller 16.0 billion surplus.

Over in the United Kingdom, the pound got a leg up after producer prices were revealed to be growing higher at a record pace. United Kingdom May output prices rose by their biggest monthly gain since 1981.

"Clearly however oil prices aren't being tempered so this will continue to push manufacturing costs higher, but the prospect of stagflation continues to loom large for the UK economy," said Hughes at CMC Markets.

Official figures showed both output and input price inflation running way above forecasts and at their highest level since comparable records began in 1986 on an annual basis during May -- at 8.9 and 27.6 percent respectively. What will be particularly worrying, however, is that the rise is not purely confined to oil and food products, with core output prices jumping by 5.9 percent, the highest level in over 17 years.

"May's U.K. producer prices data are absolutely horrendous," said Jonathan Loynes at Capital Economics. "The increases are now so large that at least some portion of them look likely to work there way into the high street, even if retail sales slump," he said. He described the figures as the "clearest signs yet that the inflation problem is starting to spread beyond the food and energy sectors".

The news will be a major concern for the Bank of England and will further reduce the chances of an interest rate cut to support a flagging economy.

London 1317 GMT London 0839 GMT
    U.S. dollar
    yen 105.64 up from 105.39
    Swiss franc 1.0205 up from 1.0165
    Euro
    U.S. dollar 1.5776 down from 1.5830
    yen 166.70 down from 166.85
    Swiss franc 1.6103 up from 1.6093
    pound 0.7972 down from 0.8013
    Pound
    U.S. dollar 1.9785 up from 1.9773
    yen 209.02 up from 208.47
    Swiss franc 2.0192 up from 2.0099
    Australian dollar
    U.S. dollar 0.9610 down from 0.9631
    pound 0.4857 down from 0.4868
    yen 101.54 up from 101.50

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Euroshares recover at midday as U.S. seen opening up; oils gain, financials fall

LONDON - Europe's largest bourses were recovering from earlier lows in midday deals as the DJIA looks set to recover some ground in opening deals and as gains in oil shares offered support.

At 11:47 a.m., the DJ STOXX 50 was down 1.64 points, or 0.05 percent, at 3051.36 but the DJ STOXX 600 remained in the red, down 0.88 point, or 0.28 percent, at 309.41.

Back in Europe, Total added 1.22 percent, ENI moved up 1.19 percent and BP was 2.2 percent higher as New York's main oil futures contract, light sweet crude for July delivery, eased $1.22 to $137.32 but remained close to all-time highs after making its biggest one-day jump ever on Friday.

Informa surged 11.72 percent after it it was in preliminary all-share merger talks with United Business Media (UBM). Analysts cheered the deal, saying it would make sense for both parties, suggesting Informa shareholders are likely to want 500 pence or more. UBS also suggested that Axel Springer's Cinven-owned publishing group or private equity group Apax could counterbid for Informa. UBM shares added 1.9 percent.

IAWS added 4.33 percent and Hiestand fell 4.14 percent as the pair said they will merge in a deal that will see the combined group become market leader in frozen bakery products.

Iliad moved up 0.69 percent after it said it entered exclusive negotiations with Telecom Italia SpA to acquire Liberty Surf Group SAS, which includes broadband internet operator Alice in France.

France Telecom rallied 1.16 percent after falling last week as investors questioned the group's reasons for bidding for Telisonera. Investors cheered the group's reassurance that it would not lift its offer and comments suggesting it might walk away from the deal.

"The share's taken a battering (since the announcement of the offer for TeliaSonera) and these comments are reassuring for the market. What they're basically saying is that the deal's not indispensable - they've made an offer, if Teliasonera doesn't like it then they'll give up," said a dealer at a Paris-based brokerage. Dexia upgraded the shares to 'buy' from 'hold'.

British Energy added 0.82 percent after a number of reports over the weekend suggested the UK nuclear group has accepted a 14 billion euro offer from EDF.

Elsewhere among utilities, Suez added 2.65 percent as Merrill Lynch resumed coverage of it and Gaz de France with 'buy' ratings. GDF shares were up 3.19 percent as the broker also added the group's shares to its Europe 1 list.

Financials were under pressure after further falls on global markets and amid ongoing uncertainty about prospects for the sector if the economic gloom continues.

UBS AG shares fell 3.09 percent on the last day of its rights issue after weekend reports it will have to report fresh writedowns of 2-4 billion Swiss francs as it continues to reduce its subprime positions. In the first quarter, the Swiss banking giant revealed writedowns of some $19 billion.

Elsewhere, Societe Generale shares were down 1.11 percent and Deutsche Bank shares were 1.9 percent lower.

Danske Bank slipped 1.16 percent as talk circulated that the group might have to detail more writedowns and might need a rights issue. But traders were largely dismissive, pointing to the group's strong Tier 1 ratio and shares recovered from earlier lows.

Royal Bank of Scotland shares fell 0.71 percent. Earlier, the group announced its 12 billion pound rights issue received a take-up rate of over 95 percent. The news boosted shares in Bradford & Bingley by 3.94 percent. The mortgage bank's shares slumped last week after it too announced plans for a rights issue.

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Asian shares tumble after oil price surge, weak U.S. jobs data

SINGAPORE - Asian shares tumbled on Monday following a slide on Wall Street Friday after crude oil prices soared to a new record near $140 and the latest jobs data showed a steep increase in U.S. unemployment.

"Oil prices are the most critical issue in the market now, overwhelming all other positive leads, and no improvement in sentiment is in sight until energy costs stabilize," said Hwang Geum-dan, an analyst at Samsung Securities in Seoul.

"Inflation risks are accelerating in the wake of soaring oil prices, holding the stock market hostage," said Kim Ju-hyung, an analyst at Tong Yang Investment Bank in Seoul. South Korea's KOSPI fell 23.35 points or 1.3 percent to close at 1,808.96.

In Tokyo, the Nikkei 225 index finished down 308.06 points or 2.1 percent at 14,181.38. "Naturally Japanese stocks were sold after oil prices, along with the yen, shot up, "said Yoshikiyo Shimamine, chief economist at Dai-Ichi Life Research Institute in Tokyo.

Losses on the Tokyo bourse were broad-based, with exporters such as Sony Corp leading the fall on concerns that a stronger yen against the dollar will hurt their profit margins.

Sony fell 3.7 percent to 5,280 yen and Matsushita Electric Industrial edged down 1.8 percent to 2,425 yen. Toyota lost 2.9 percent to 5,430 yen and Honda Motor skidded 3.4 percent to 3,730 yen. Nissan Motor dropped 3.4 percent to 941 yen. 

Singapore's Straits Times index closed down 62.71 points or 2 percent at 3,084.02, and the Kuala Lumpur Composite Index (KLCI) fell 17.59 points or 1.4 percent to 1,230.98, off a low of 1,223.45.

The Taiwan weighted index closed down 1.8 percent at 8,587.96, while the Jakarta composite index closed up 7.84 points or 0.3 percent at 2,410.08, off a low of 2,352.60.

Indian shares witnessed the steepest fall among regional peers on Monday as United States recession fears and climbing oil prices triggered heavy selling. The market fell sharply at the opening as United States data showing increase in unemployment rate caused a 400-point fall on Wall Street on Friday. Oil prices hovering at about $140 a barrel also made investors nervous even though prices eased a bit subsequently on Monday.
   
The Bombay Stock Exchange's 30-share Sensex closed down 3.25 percent, or 506.08 points, at 15,066.10 points and the National Stock Exchanges's 50-share S&P CNX Nifty shed 2.74 percent, or 126.85 points, to 4,500.95 points. The Nifty hit a new annual low, breaching 4,448.50 during the day.

Markets in Australia, Hong Kong, Shanghai and Manila were closed for public holidays.

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Gold near $900 as dollar comes off lows; oil prices eyed

Gold steadied near $900 as the dollar came off lows and as oil prices lost a few dollars from the record hit Friday.

The precious metal moves in the opposite direction to the dollar as it is seen as an alternative asset and in line with oil prices as gold is bought as an inflation hedge.

Friday's record breaking rally for crude oil helped pull gold to a day high of $909.10 Monday, its highest value in over a week, but prices are now steady near $900 with all eyes on the dollar and crude.

"Participants will certainly look at oil prices first, but will also be watching for the release of U.S. economic figures as regards construction spending and manufacturing activity," said Kitco analyst Jon Nadler.

At 2:12 p.m., spot gold was trading at $899.20 per ounce against $896.10 in late New York trade on Friday.

Gold hit a record $1032.50 in mid-March on a combination of inflation woes, dollar weakness and as global economic turmoil sparked a rush of safe haven buying. Since then, some of that financial market turbulence has eased and seen investors head back into trading riskier assets, like equities.

Among other precious metals, platinum was trading down at $2,035 per ounce against $2,070 in late New York trades on Friday.

Platinum's sister metal, palladium was down at $426 from $431, while silver was down to $17.36 per ounce from $17.41.

Copper rallied on dollar weakness, high oil prices and falling stocks, but analysts warned that prices could fall again on easing demand. China, the world's biggest copper consumer, is on holiday today, so LME volumes were light.

At 11:15 a.m., LME copper for three-month delivery was at $8,048 a tonne from $8,000 at the close on Friday. Earlier, the red metal hit an intra-day high of $8,078.72 a tonne.

Tin rose to $22,050 from $21,800 a tonne. Lead traded up to $1,980 from $1,950, while aluminium was up at $2,970 from $2,958. Nickel fell to $21,950 from $22,005, while zinc rose to $1,990 from $2,008.

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