US & World Daily Markets Financial Briefing 12-06-2008

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Stocks gain after retail sales report

NEW YORK - A dose of good economic news and a buyout offer for Anheuser-Busch Cos. gave Wall Street a big early rebound Thursday, sending the Dow Jones industrials jumping more than 150 points. Treasury prices fell, driving yields higher, as investors returned to stocks.

News of a management shakeup at Lehman Brothers Holdings Inc. drew fresh attention to troubles in the financial sector. Lehman, which earlier this week posted a quarterly loss of $2.8 billion, on Thursday ousted its chief financial officer and chief operating officer. But while long-term concerns likely remain about the sector, financial shares were moving higher. Lehman fluctuated and fell 12 cents to $23.63.

The Commerce Department said May retail sales, which appeared to receive a boost from tax rebate checks, rose 1 percent. That was the biggest improvement in six months. Meanwhile, the Labor Department said first-time claims for unemployment benefits rose, but some of the pickup was due to volatility following the Memorial Day holiday.

Belgian Brewer InBev SA, whose brands include Beck's and Stella Artois, offered late Wednesday to buy the maker of Budweiser, Bud Light and other brands for $65 per share. Shares of Anheuser-Busch rose $3.65, or 6.3 percent, to $62.

In the first hour of trading, the Dow rose 154.37, or 1.28 percent, to 12,238.14. Broader stock indicators also rose. The Standard & Poor's 500 index advanced 15.37, or 1.15 percent, to 1,350.86, and the Nasdaq composite index rose 34.26, or 1.43 percent, to 2,428.27.

The stock market finished sharply lower on Wednesday as oil prices rebounded, fanning concerns that inflation will further pinch consumers and lead central banks to raise interest rates. The Dow fell almost 206 points.

Bond prices fell Thursday as some investors left the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its prices, jumped to 4.16 percent from 4.07 percent late Wednesday. The dollar rose against other major currencies, while gold prices rose.

Investors also seemed more interested in stocks as oil prices fell sharply, dropping $3.09 to $133.29 a barrel on the New York Mercantile Exchange. Oil prices, which have been highly volatile lately, spiked on Wednesday after an energy report showed inventories fell last week, and fed into fear about supply.

In corporate news, Citigroup Inc. is closing a hedge fund co-founded by current chief executive Vikram Pandit. Pandit joined Citi have selling Old Lane Partners in July 2007. Citi shares rose 73 cents, or 3.8 percent, to $19.94.

Embattled mortgage lender Thornburg Mortgage rose 1 cent to 73 cents after posting a $3.31 billion loss for the first quarter, and reporting that loan delinquencies are likely to continue to increase "modestly" for the rest of the year. Thornburg specializes in larger mortgages, known as "jumbo loans," which total more than $417,000.

Borders Group Inc. shares rose 37 cents, or 5.4 percent, to $7.07 after one of its biggest shareholders, hedge fund manager William Ackerman, said the bookseller should consider approaching Amazon.com Inc. to propose that the online retailer acquire Borders. Ackerman is co-founder of Pershing Square Capital Management, and owns 30 percent of Borders.

Staples Inc. rose 49 cents, or 2 percent, to $24.87 after the office supply giant succeeded in its bid to buy Dutch office supply distributor Corporate Express NV for about $2.7 billion. Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 193.1 million shares.

The Russell 2000 index of smaller companies rose 10.99, or 1.53 percent, to 728.87. Overseas, Japan's Nikkei 225 average closed 2.08 percent higher. In afternoon trading, Britain's FTSE 100 index added 0.66 percent, Germany's DAX 30 index rose 0.71 percent, and the French CAC-40 index rose 0.52 percent

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Forex - Euro steadies against dollar ahead of U.S. retail sales news

LONDON - The euro steadied at recent lows against the U.S. dollar ahead of key U.S. data. U.S. retail sales are expected to have rebounded in May, rising by 0.5 percent following a 0.2 percent decline in April. Excluding automobiles, sales are expected to have increased 0.7 percent, above the 0.5 percent gain recorded in the previous month.

"The data should lend the dollar support, but readings below expectations, probably resulting from a continued decrease in gasoline purchases due to high oil prices, could limit possible dollar gains," said Commerzbank analyst Gavin Friend.

The euro had been on the backfoot earlier after policymakers at the European Central Bank sought to dampen expectations that it will be embarking on a series of interest rate hikes in the coming months.

Markets moved to price in a growing probability of a number of interest rate increases following last Thursday's very hawkish news conference with ECB President Jean-Claude Trichet, where he gave strong guidance that the key refi rate will likely rise a quarter point to 4.25 percent in July.

However, comments on Wednesday by ECB governing council members, notably Christian Noyer and Jurgen Stark, were seen as an attempt to correct the impression in financial markets that a planned increase in euro zone rates in July would be the first of many.

While the euro has been put on the backfoot from the ECB officials' comments, the dollar has been buoyed by rising U.S. interest rate expectations.

The U.S Federal Reserve will hold a two-day rate-setting meeting starting June 24 and is expected to confirm that the monetary easing cycle is over as policymakers shift their attention to fighting inflation. Fed Chairman Ben Bernanke in recent days has reiterated his concerns about rising consumer prices.

"The outlook for the euro against the dollar is complicated by the possibility that rate hike expectations in the euro zone are scaled back at an even faster pace than in the U.S.," said HBOS currency strategist Steve Pearson.

The U.S. currency was also supported in recent days by Bernanke's statements and those by Treasury Secretary Henry Paulson that the government is not ruling out intervention in the foreign exchange market to boost the dollar.

The dollar has also gained on speculation the finance ministers from the Group of Eight countries will voice their support for a strong U.S. currency when they meet in Japan on Friday and Saturday.

Elsewhere, there is a focus on Thursday's Irish referendum on the E.U.'s Lisbon Treaty. Manuel Oliveri, currency strategist at UBS, said: "A rejection would likely consign the treaty to history and this would have a negative impact on euro sentiment, which was the case upon the rejection of the now defunct European Union Constitution by French and Dutch voters in 2005."

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Euroshares rebound as oils gain; Inbev up on US deal

At 9.18 a.m., the DJ STOXX 50 was up 19.25 points, or 0.64 percent, at 2989.46 and the DJ STOXX 600 was up 1.37 points, or 0.45 percent, at 302.74.

Shares in Total rose 1.02 percent, Repsol 0.85 percent after New York's main oil futures contract, light sweet crude for July delivery, jumped more than $5 Wednesday. BP, up 1.14 percent, also got support from a Lehman note in which the broker upped its rating to 'equal-weight'.

And Inbev climbed 4.04 percent after it confirmed it has made a $46 billion offer for Anheuser-Busch Cos., the biggest U.S. brewery. The beer group said the deal will be financed in part through $40 billion of debt, suggesting a lower than feared issue of new paper.

And Merrill Lynch said Inbev management are astute corporate financiers with a significant interest in Inbev equity, leading the broker to believe it unlikely that management will use equity financing.

Exane BNP Paribas upgraded the shares to 'neutral' from 'underperform' Shares in Iberdrola soared 3.66 percent after the Spanish utility said it will not bid for British Energy. The sharp move though sparked bid talk with some traders suggesting the group is a target for Germany's EON. others were not convinced.

One Frankfurt based trader said: "I think an EOn bid for Iberdrola unlikely as it already "got burned" on bid for Endesa."

Shares in Banco Popular Espanol soared 4.32 percent in early trade after Negocio reported a group of five Mexican investors are mulling a between 14 and 14.5 euros per share bid for the Spanish bank. Commerzbank added 0.16 percent after Handeslblatt said that it has opened its books to Allianz's Dresdner bank unit.

But U.K. banks were largely lower as the recent sell-off in housebuilders and concern about debt levels in the sector drags on sentiment.

Credit Suisse said that exposure to the sector is relatively small on balance sheets but says the recent share price movements throw a spotlight on broader U.K. property exposures and adds to the negative newsflow.

Alliance & Leicester fell 4.39 percent and Barclays shares were down 2.69 percent. In Italy, UBI Banca shares were down 0.52 percent after Cazenove cut its stance on the banking group to 'in-line' from 'outperform'.

ITV fell back 1.27 percent as UBS said the U.K. government's decision to oppose an E.U. directive allowing product placement on TV is a lost opportunity.

Ofcom estimates that product placement would contribute 25 million pounds per year to U.K. broadcasters and some media buyers suggest that this number could be significantly higher.

And U.K. retailers Carphone Warehouse and Home Retail Group fell 8.34 percent and 6.7 percent respectively after the pair issued disappointing updates pointing to weak sales and a poor outlook for consumer demand.

Later Thursday, U.S. retail sales figures are expected to show an increase of 0.5 percent in May following a 0.2 percent decline the previous month.

Meanwhile, import prices are seen to have increased by 2.0 percent in May following a 1.8 percent rise the previous month. U.S. business inventories data and May import prices are also on the calendar.

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Asian stocks fall on mounting inflation worries

In Australia, the S&P/ASX 200 closed down 2.5 percent to 5,329.2, its weakest level in two months. The All Ordinaries lost 2.3 percent to 5,433.2. Japan's Nikkei index fell 2.1 percent to 13,888.60 and the Topix slid 1.9 percent to 1,363.14.

The Shanghai Composite index lost 2.2 percent to 2,957.53. The National Bureau of Statistics announced Thursday that China's consumer prices rose 7.7 percent in May from a year earlier, slower than the 8.5 percent clip in April.

But analysts expect inflation to accelerate in the coming months due to high oil prices. Inflation in China hit a 12-year high of 8.7 percent in February. Sentiment in the Shanghai market has been weak with the key index retreating 1.6 percent on Wednesday after a more than 7 percent tumble on Tuesday.

The Hang Seng Index closed down 303.74 points or 1.3 percent to 23,023.86, its lowest level since March 31. In South Korea, the KOSPI slipped 2.4 percent to 1,739.36 after the central bank kept interest rates unchanged, highlighting growing inflation risks amid a slowing economy.

The Bank of Korea (BoK) kept its key rate at a seven-year high of 5.0 percent for the tenth straight month amid rising consumer prices. The decision was widely expected. "The inflation risks are greater than the risk of a slowing economy," the BoK said in a statement after its monetary policy meeting.

Elsewhere in the region, Taiwan's weighted index finished down 3.39 percent at 8,062.31, and Manila's composite index was 1.3 percent lower at 2,544.89.

Crude prices continued their record-breaking run due to supply concerns. The U.S. government's Energy Information Administration (EIA) announced in its weekly report that American crude stockpiles dived 4.6 million barrels in the week ending June 6.

That was far steeper than market expectations for a drop of 1.5 million barrels and marked the fourth straight weekly fall. Oil prices have surged since breaking through the $100 level at the start of the year, and some bullish analysts say prices could hit $150 soon.

Asia is especially sensitive to rises in oil prices as the region imports most of its fuel needs. Financial stocks led the regional markets lower with National Australia Bank dropping 4.0 percent to A$27.64, Commonwealth Bank losing 2.9 percent to A$41.61 and ANZ shedding 4.1 percent to A$19.57.

In Tokyo, Mitsubishi UFJ Financial Group declined 1.3 percent to 1,042 yen and Mizuho Financial Group slid 3.1 percent to 532,000 yen. In, Hong Kong, HSBC Holdings fell 1.8 percent percent to HK$126.00.

Oil stocks were mixed. In Australia, Woodside Petroleum lost 0.6 percent to A$61.22 and Santos fell 1.0 percent to A$21.68 though Oil Search jumped 3.4 percent to A$6.05, helped by exploration success in Papua New Guinea.

Offshore oil producer CNOOC was last up 0.45 percent at HK$13.26 in Hong Kong while, PetroChina Co gave up 0.97 to HK$10.22. The Kuala Lumpur Composite Index (KLCI) finished down 0.3 percent at 1,225.54,00 and Singapore's Straits Times index closed down 0.9 percent at 3,020.15. Jakarta's composite index closed up 1.4 percent at 2,409.01

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Metals - Copper falls as dollar picks up; outlook weak

LONDON - Copper fell as the dollar picked up, wiping the appeal of commodities priced in the greenback.

Meanwhile, demand is seasonally weak and the outlook remains far from rosy with some expecting global economic turmoil could impact buying going ahead.

"The prospect of a strengthening US dollar is making copper less attractive as an investment and we fully expect prices to weaken further as slower industrial demand in western markets takes a firmer grip," said analysts at the Virtual Metals group.

Looking ahead, short-term direction for most commodities will depend upon the dollar's movements.

The U.S. currency has been supported in recent days by Bernanke's statements and those by Treasury Secretary Henry Paulson that the government is not ruling out intervention in the foreign exchange market to boost the dollar.

The dollar has also gained on speculation the finance ministers from the Group of Eight countries will voice their support for a strong U.S. currency when they meet in Japan on June 13 and 14.

The data calendar for Thursday is fairly light, though U.S. retail sales data will garner some attention.

At 10:06 a.m., LME copper for three-month delivery was at $7,864 a tonne from $7,920 at the close on Wednesday.

Tin rose to $21,750 from $21,500 a tonne. Lead traded at $1,895 from $1,880, while aluminium was down at $2,957 from $2,960. Nickel jumped to $23,800 from

$23,200, while zinc dropped to $1,916 from $1,920.

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