US & World Daily Markets Financial Briefing 12-08-2008

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US STOCKS-Credit fears sink Wall St; JPMorgan slides

NEW YORK - U.S. stocks fell on Tuesday, led lower by financial shares on worries about further losses stemming from the mortgage crisis.

News that JPMorgan Chase  , the No. 3 U.S. bank, has taken another $1.5 billion of write-downs in the current quarter to date suggested the fall-out from the housing slump is far from over. For details, see

Additionally, Goldman Sachs  was hit by several stock rating downgrades. Shares of JPMorgan, down more than 6 percent at $39.03 on the New York Stock Exchange, were a top drag on the Dow and the S&P 500, as shares of Goldman declined more than 4 percent to $170.64.

The Dow Jones industrial average fell 111.30 points, or 0.94 percent, to 11,671.05. The Standard & Poor's 500 Index declined 9.30 points, or 0.71 percent, to 1,296.02. The Nasdaq Composite Index fell 10.29 points, or 0.42 percent, to 2,429.66.

The US trade deficit in June unexpectedly improved as US goods and services exports increased faster than imports, the Commerce Department said today.
  
The US trade deficit totaled $56.8 bln in June, down 4.1% from the revised $59.2 bln May trade gap. Economists polled by Thomson Reuters IFR Markets were expecting the deficit to increase to $61.5 bln.
  
However, when adjusted for inflation, including oil prices, the real US trade deficit fell by 10.3% in June to $39.1 bln, the lowest level since December 2001.
   
Goods and services exports rose 4.0% in June, the largest increase since February 2004, while imports grew by a slower 1.8%. This reflects a 5.1% increase in goods exports, also the highest since February 2004, and a 2.0% increase in goods imports. Exports and imports of both goods and services hit record highs.
   
Exports of autos, parts and engines grew by $576 mln, while imports grew by $60 mln. US exports of food, feeds and beverages rose by $853 mln while US imports of the same products fell by $144 mln. Exports of capital goods excluding autos rose by $1.19 bln in June, while imports fell $1.37 bln.
   
Both imports and exports of petroleum rose to record highs, although imports rose much faster than exports. This left the petroleum deficit in June at a record high $36.4 bln. A likely cause for this was a record high $117.13 price per barrel of oil in the month.
   
The trade deficit with OPEC countries grew to a record high $18.1 billion, while the politically sensitive US trade gap with China rose to $21.4 bln.

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Forex - Euro picks up against U.S. dollar on geopolitical concerns

LONDON - The euro picked up against the dollar after earlier hitting a six-month low against the U.S. unit on geopolitical concerns amid ongoing tensions between Georgia and Russia. A further negative for the dollar has been renewed rises in the oil price following news that BP has closed two oil and gas pipelines running through Georgia, as well as talk of manoeuvres by Iran.

The euro has now moved back above the $1.49 mark against the dollar, but these gains could be short-lived as the trend in broad U.S. dollar strengthening is expected to continue.Growing evidence that the U.S. economy may be over the worst while other economies, particularly the euro zone, show signs of slowing significantly, is supporting the broad-based gains in the U.S. currency.

"As growth and rate expectations outside the U.S. continue to worsen, we believe the dollar will continue to firm towards our pre-existing 1.40 forecast for euro/dollar over the next 12 months," said Benedikt Germanier at UBS.

Earlier, the dollar rose briefly after better-than-expected trade data, showing the U.S. trade deficit narrowed by more than forecast in June. At 1352 GMT, the euro was trading at $0.4934 against the dollar, up from $1.4892 at 0945 GMT. The single currency earlier hit a six-month low of $1.4813.

Meanwhile, the pound also gained against the dollar as market players awaited Wednesday's key Bank of England inflation report, which should give more clues on which direction the next move in interest rates will be. Data Tuesday showed a massive spike in annual UK CPI inflation during July to 4.4 percent from 3.8 percent in June. This takes the rate to more than double the Bank of England's 2.0 percent target, increasing the chances that interest rates could be set to rise.

With mounting evidence, however, that the credit crunch and soaring inflation are taking their toll on the UK economy, there are still many in the market that think the next rate move will be a cut. The uncertainty will mean most will remain sidelined until the views of BoE rate setters becomes clearer following tomorrow's inflation report, where they will lay out their latest forecasts for inflation and growth.

"As expected, inflation continues to move higher, however the market will be more interested in tomorrow's inflation report which will include the MPC's view on the likely path of inflation over the next couple of years," said Ian Kernohan at Royal London Asset Management.

At 1352 GMT, the pound was trading at $1.9034 against the dollar, up from $1.8999 at 0945 GMT, and well above an earlier nine-month low of $1.8967. The euro meanwhile edged up to 0.7844 pounds from 0.7837 at 0945 GMT.

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UK and European stockwatch highlights to 10:10 BST

Shares in Weir Group Plc. reversed from earlier gains to slip lower in midmorning deals as profit-takers capitalised on the group's bumper first-half results, with brokers staying largely positive on the stock, anticipating upgrades.

Deutsche Bank initiated EDP Renovaveis as 'hold' with a 7 euros target noting the group's very good growth story, but the broker says the group's management still needs to demonstrate its ability to deliver on targets.

Shares in Advanced Metallurgical Group NV plunged as much as 15 percent after the company revealed that the ramp up of solar grade silicon production is going more slowly than predicted at its Canadian Timminco unit.

Celesio AG. was higher in early-morning deals after the MDAX-listed drugmaker released second-quarter figures that were largely in line with expectations and as traders and analysts praised the company's business model, saying it should see a turnaround soon.

Shares in Pearson Plc. fell back in morning trade as Credit Suisse cut estimates for the publisher and recommended investors switch out of the stock and into peer Reed Elsevier Plc., according to market sources. Shares in Woolworths Group Plc. dipped in early deals, as the high street retailer announced the appointment of a new chief executive, leading to a cautious view from brokers.

Deutsche Bank has upgraded Union Fenosa S.A. to 'buy' from 'hold' and lifted its price target to 18.3 euros from 14, following Gas Natural's plan to buy out the group. Shares in Leoni AG. were higher in early morning deals after the MDAX-listed cable and wiring systems specialist reported solid second-quarter figures, which came in above expectations in all important areas and reiterated its 2008 guidance.

Shares in Speedy Hire Plc. were lower early morning after Merrill Lynch downgraded the group to 'neutral' from 'buy' with a price objective of 543 pence, market sources said. Shares in Weir Group Plc. rose in opening deals, as it posted bumper first-half results, which led to a positive broker response and Merrill Lynch keeping a 'buy' rating on the stock.

Goldman Sachs has upgraded L'Oreal to 'neutral' from 'sell' with a price target cut to 71.8 euros from 72 euros, market sources said. JP Morgan has cut Trinity Mirror Plc. to 'underweight' from 'neutral' as part of a review of UK newspapers in which it said comparisons with the United States suggest worse is yet to come, according to market sources.

Goldman Sachs upgraded its stance on Beiersdorf AG. to 'buy' from 'neutral' and added it to the brokerage's "conviction buy list", largely citing valuation grounds. Shares in Bouygues may rise after the French conglomerate announced better than expected first half sales, spurred by a strong performance in its telecoms and construction operations.

JP Morgan has upgraded Fastweb SpA to 'neutral' from 'underweight' with a target  of 22 euros, market sources said. Cazenove has downgraded Nokia to 'in-line' from 'outperform', saying the strong performance by the handset giant's shares since the beginning of the quarter leaves little room for disappointment regarding margins going into the second half of the year.

Goldman Sachs downgraded its stance on Henkel KgaA. to 'sell' from 'neutral' and added the the household goods company to its "conviction sell list", saying it could come under pressure from higher raw material prices.Credit Suisse has downgraded Axa to 'neutral' from 'outperform' and cut its target for the French insurance group to 24.02 euros from 27 euros to reflect growing uncertainty about future sales growth.

HSBC has downgraded N Brown Plc. to 'neutral' from 'overweight' with a target of 225 pence, market sources said. Shares in Bilfinger Berger AG. were higher in pre-bourse trade after the MDAX-listed construction specialist reported second-quarter figures which traders said surprised on the upside.

SG Securities initiated coverage of French construction materials group Vicat with a 'sell' recommendation and a 37 euros target, saying the share's underperformance so far this year looks set to continues JP Morgan has upgraded Fortis to 'neutral' from 'underweight' with a target rise to 12.20 euros from 11.86 euros, market sources said.

Shares of India-based Panacea Biotec Ltd. rose five percent after the company said it won a contract worth $35 million or 1.43 billion rupees from UNICEF for supply of its pentavalent vaccine, EasyFive, for 2008 and 2009.

Belgian healthcare group UCB SA. was downgraded to 'underperform' from 'neutral' at Credit Suisse after its stock price went over 27 percent above the brokerage's 21.00 euro target. Adecco looks set to find support in opening deals after the world's largest staffing firm reported a better-than-feared 5 percent drop in second-quarter net profit, although its cautious comments on its outlook could limit gains.

UBS has downgraded Old Mutual Plc. to 'neutral' from 'buy', with a target cut to 108 pence from 132 pence, market sources said. Citigroup has cut Standard Chartered Plc. to 'sell' from 'hold', while lowering its price target to 1,300 pence from 1,525, in the wake of first-half results last week, according to market sources.

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Asian stock market summary

JAPAN

The Nikkei 225 finished down 1 percent at 13,303.60, as traders moved to lock in profits after the index advanced 2 percent in the previous session.  Some traders exercised caution ahead of the release of Japan's second quarter gross national product (GDP) on Wednesday. The broader Topix ended 0.7 percent lower at 1,271.42.

SOUTH KOREA

The Korea Composite Stock Price Index closed down 0.25 percent at 1,577.12 points, with losses by oil refiners and financials on outlook worries outweighing gains by exporters, who were lifted by easier oil prices and weakness in the local currency.

AUSTRALIA

The benchmark S&P/ASX 200 index closed up 0.5 percent at 5,053.6, staging a late turnaround as institutional investors bought oversold heavyweight mining stocks such as BHP Billiton Ltd encouraged by positive economic news from China. The All Ordinaries finished up 0.4 percent at 5,090.4.
   
CHINA
   
The benchmark Shanghai Composite Index ended down 0.52 percent at 2,457.20, the lowest closing level in 19 months, with investors not putting much confidence in the slowdown in July inflation to 6.3 pct from 7.1 pct in June.
   
The Shanghai A-share Index fell 0.52 percent to 2,578.99, while the Shenzhen A-share Index was down 0.62 percent at 727.90. The Shanghai B-share Index fell 0.68 percent to 164.37, while the Shenzhen
B-share Index was up 1.06 percent at 387.10.

TAIWAN

The weighted index closed down 0.43 percent at 7,293.80, as profit takers took back early gains spurred by the extended decline in crude oil prices.

HONG KONG

The Hang Seng Index shed 218.45 points or 1 percent to close at 21,640.89, which was also the day's low. A total of HK$70.05 billion worth of shares changed hands, up from Monday's HK$57.59 billion.

INDIA

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange, closed down 291.79 points or 1.88 percent at 15,212.13 and the broader 50-share S&P CNX Nifty of the National Stock Exchange closed down 1.47 percent at 4,552.25 points.

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Oil prices dive in London morning trading

LONDON - Crude prices slid further on Tuesday, even as Russia attacked a key strategic oil pipeline in its battle with Georgia, as the International Energy Agency forecast a steep drop in energy demand.

The IEA, publishing its monthly report, painted a global picture of sharply falling demand for oil because of high prices and economic slowdown, and a cut in the use of cars and increased crude production.

Oil prices also fell as the dollar hit a six-month peak against the euro, traders said. A stronger US currency tends to dampen demand for dollar-denominated commodities as they become more expensive for buyers holding weaker currencies.

London's Brent North Sea crude for September delivery lost 1.56 dollars to 111.11 dollars per barrel in electronic trading on Tuesday.

New York's main contract, light sweet crude for September delivery sank 1.35 dollars to 113.10. The Russian airforce attacked a key oil pipeline running through Georgia on Tuesday but there was no word yet on whether it had been damaged, the secretary of Georgia's National Security Council told AFP. "Russians bombed the BTC pipeline south of the city of Rustavi," said Alexander Lomaia. "We don't know yet whether it was damaged. It's a second attempt to bomb this pipeline since August 10."

A spokesman for British energy giant BP, which operates the pipeline, said the company was unaware that it had been attacked.

The BTC pipeline had already been shut last week after a blast occurred in a pump at a section in eastern Turkey. It normally carries up to a million barrels per day of mostly Azeri crude oil to the Turkish port of Ceyhan.

The IEA said Tuesday that the closure of the BTC pipeline because of an attack claimed by Turkish insurgents, and then the fighting between Georgia and Russia, had not "materially affected prices" crude traded on world markets.

Meanwhile in the foreign exchange market, the European single currency sank as low as 1.4816 dollars -- a level last reached on February 26.

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