US & World Daily Markets Financial Briefing 13-08-2008

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US STOCKS-Wall St extends losses on oil, economy worry

NEW YORK - U.S. stocks extended losses on Wednesday, briefly driving the Dow 1 percent lower, as rising oil prices added to economic worries that had been fueled by data showing weak retail sales last month.
   
Shares of Deere & Co  plunged more than 11 percent after the world's largest maker of farm machinery reported lower-than-expected sales and profits, saying that high raw material costs would hurt profits also in the fourth quarter.
   
The Dow Jones industrial average lost 102.26 points, or 0.88 percent, at 11,540.21, while the Standard & Poor's 500 Index declined 7.31 points, or 0.57 percent, at 1,282.28. The Nasdaq Composite Index fell 5.77
points, or 0.24 percent, at 2,424.84.

Growth in the Consumer Price Index for July is expected to have moderated to 0.4 percent, from the rise of 1.1 percent in the previous month.     

"Gas prices slipped after hitting record highs mid-month, so we probably won't see a repeat of the largest monthly gain in the CPI in 26 years," said Sal Guatieri of BMO Capital Markets.
   
Excluding highly volatile food and energy prices, core CPI is expected to have risen 0.2 percent following a 0.3 percent gain in the previous month.

Weekly jobless claims figures are expected to show the number of individuals filing first-time claims for unemployment in the week to August 9 dipped to 440,000 claims from a more than six-year high of 455,000.
   
The Labor Department said that last week's reading was probably boosted by an indirect response to the Emergency Unemployment Compensation (EUC) program. Many people contacted about the program discovered that they qualified instead for regular unemployment benefits. Economists said the distortion from this should fade in the coming week's report.
   
Meanwhile, the number of individuals continuing to file claims for unemployment in the week ending August 2 is expected to have declined to 3.300 million from 3.311 million.

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Forex - Dollar recovers from brief dip after U.S. data; Pound slumps further

LONDON - The dollar recovered from a brief dip against the euro after U.S. data showed retail sales fell during July, while the pound continued to slump sharply following a dovish Bank of England quarterly
Inflation Report.
   
Figures showed U.S. retail sales dropped by 0.1 percent in July, the first fall in five months as falling sales at auto dealers offset modest gains in most other major retail sectors. Analysts had forecast no change in sales.
   
The dollar dipped briefly on the news, but soon picked up again, with the ongoing sense in markets that the economic slowdown is global and not confined to the U.S. continuing to give broad support to the currency. Though the euro came off Tuesday's six month lows against the U.S. dollar, it remained weak,
hovering around the $1.49 mark.
   
At 1334 GMT, the euro was trading at $1.4881, compared with 1.4917 at 1000 GMT. Meanwhile, the pound slumped way below the $1.90 level against the U.S. dollar to hit its lowest level in nearly two years after a dovish Inflation Report and accompanying press conference from the Bank of England.
   
The BoE predicted not only that inflation will fall back towards its target, but that the UK economy is at risk of recession. Following the release of the Inflation Report, governor Mervyn King told a press conference that the current period of above-target inflation will be temporary, and that there is bound to be at least one quarter of negative growth in the UK economy.
   
This has led market players to price in the risk that the central bank could be set to cut interest rates faster and further than previously assumed, causing the pound to slump and short sterling futures -- a gauge of interest rate expectations -- to surge.
   
"Markets have reacted with a further sharp drop in the path of market interest rates priced in for the next 2-3 years, and a marked drop in sterling," said Michael Saunders at Citigroup. "We are certainly gloomy on the UK's economic prospects, and sterling remains vulnerable on a trade-weighted basis and -- especially -- versus the US dollar," he added.
  
At 1336 GMT the pound was trading at $1.8718 against the dollar, compared with $1.8836 at 1000 GMT, only just off a low of $1.8704, its weakest level since October 2006. The euro was at 0.7952 pounds, up from 0.7854 pounds at 1000 GMT.

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TFN NEWS BRIEFING: UK and European stockwatch highlights to 10:10 BST

JP Morgan has cut its target on Buzzi Unicem SpA shares by 6 percent to 24.6 euros after the company reduced its full-year guidance on Tuesday and released a disappointing set of second-quarter numbers. Shares in DSG International Plc. slumped 15 percent in midmorning deals as high street gloom continued to hurt retailers, while it also suffered from a cautious take from Pali International, which kept 'sell' on the stock, and a broker downgrade.

MLP AG shares rose in midmorning trade, posting strong gains for a second day as speculation persisted that AWD Holdings AG. is poised to lodge a hostile bid for the midcap financial services provider, though analysts' reactions were mixed.

Shares in SQS Software Quality Systems Ag. climbed higher in early morning trade following its announcement of multiple new contract wins, which prompted Evolution Securities and Altium Securities to repeat their 'buy' recommendations. Shares in Arcandor AG. fell significantly in morning trade after the MDAX-listed retailer said it was cutting its 2008/09 EBITDA due to higher restructuring costs and rising expenses at its department stores.

Shares in Micro Focus International Plc. stayed high in midmorning deals, as it posted "solid" first-quarter results and stayed positive for the rest of the year, leading Piper Jaffray to keep a 'buy' rating on the stock.

HSBC has upgraded Assystem to 'overweight' from 'neutral', while raising its price target on the stock to 12.5 euros from 11.4, dealers said. Shares in CSM NV fell sharply after the Dutch food group revealed weaker than expected first half net profit because of restructuring in its bakery division.

Shares in Micro Focus International Plc. were higher early on, after a first-quarter trading update from the company which UBS described as "positive", prompting the broker to keep its 'buy' recommendation, according to market sources.

Chinese banks tanked after the the nation's top lender ICBC  was downgraded by Credit Suisse analysts on Wednesday, and after recent data pushed concerns over growth and inflation in China to centre stage.  Shares in Interserve Plc. ticked higher in opening trade after the group announced a 19.5 percent rise in first-half profits, prompting Citigroup and Panmure Gordon to recommend 'buy', while Cazenove said 'outperform'.

Shares in Hypo Real Estate Holdings AG. retreated to the bottom of the DAX-30 index after the commercial financier reported disappointing second-quarter figures, which traders and analysts said
were particularly poor on the bottom line.

Shares in Balfour Beatty Plc. ticked higher in early deals, as it posted bumper first-half results and a positive outlook statement, leading Panmure Gordon to upgrade the stock to 'buy' from 'sell' and raise its price target. Shares in ING Group fell after the Dutch insurance and banking group reported a smaller than expected drop in second quarter net profit but revealed weak new business volumes.

Shares in Kloeckner & Co AG. were higher in early morning trade after the MDAX-listed fertiliser and industrial salts specialist reported final figures for the first half of 2008 higher than both preliminary figures and consensus. Deutsche Bank upgraded Uponor to 'buy' form 'hold', saying the deterioration of construction activity in all of the Finnish construction group's key markets and the poor outlook is already priced in.

Shares in Balfour Beatty Plc. rose higher in opening deals, as it posted bumper first-half profits and looked positively ahead at trading to come, leading Landsbanki Securities to keep a 'buy' rating on the stock. Citigroup has lifted its target for Schroders Plc. to 875 pence from 770 and lifted its estimates, in the wake of first-half results from the fund firm last week, according to market sources.

CA Cheuvreux upgraded Vilmorin & Cie to 'Outperform' from 'Underperform' in the light of "an excessive drop" in the seed company's shares since its "disappointing" fourth quarter sales figures. MLP AG shares rose in pre-bourse trade, extending yesterday's gains on continued takeover speculation following press reports that AWD Holdings AG. could bid for the MDAX-listed financial services provider.

Shares in Schulthess Group AG have been upgraded to 'buy' from 'underperform' at Merrill Lynch on the back of the Swiss washing machine and tumble dryer manufacturer's better-than-expected first-half results, traders said.

Shares in Lanxess AG. were higher in pre-bourse electronic trade after the MDAX-listed chemicals company released second-quarter figures that came in better than expected in all important areas. UBS has initiated Royal Boskalis Westminster N.V. with a 'buy' rating and a price target of 45 euros, market sources said.

UBS has cut Campari to 'neutral' from 'buy', while lowering its target to 6.6 euros from 6.7, saying it believes the share price is largely pricing in positive catalysts, according to market sources. Investec Securities has upgraded Signet Group Plc. to 'buy' from 'hold' while upping its price target to 83 pence from 58, as it predicted a re-rating of the stock. UBS has upgraded OMV AG. to 'buy' from 'neutral' with a target raised to 50 euros from 47 euros, market sources said.

Shares in Misys Plc. have been downgraded to 'sell' from 'neutral' at UBS but the price target maintained at 160 pence, with the broker citing looming integration risks, according to market sources. Shares in K+S AG. were higher in pre-bourse trade after the MDAX-listed fertilizer and industrial salts specialist reported second-quarter figures, which came in higher-than-expectations across the board.

Merrill Lynch has upgraded Benfield Group to 'buy' from 'underperform' with a price objective of 300 pence, market sources said. UBS has downgraded Celesio AG to 'neutral' from 'buy' and lowered its price target on the stock to 29 euros from 35, dealers said.

Merrill Lynch has downgraded Friends Provident Plc. to 'underperform' from 'neutral', giving the group's stalling disposal programme, dealers said. JP Morgan has downgraded DSG International Plc. to 'underweight' from 'neutral' with a maintained price target of 50 pence, market sources said.

RBS has downgraded Crucell N.V. to 'hold' from 'buy' given the stock's limited upside potential of 4 percent to its price target of 11.8 Euros, dealers said. UBS has downgraded Arm Holdings Plc. to 'neutral' from 'buy' with a raised target to 114 pence from 106 pence, market sources said.

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Asian stock market summary

JAPAN
The benchmark Nikkei 225 Stock Average ended 2.1 percent lower at 13,023.05, after sentiment was dampened by anxiety surrounding the financial sector and increasing concerns about the global economy.
   
Financial stocks led the decline after JPMorgan Chase & Co said it has incurred wider losses in its mortgage holdings so far in the third quarter than in the second quarter.

Meanwhile, the government announced that Japan's economy contracted for the first time in four quarters in the second quarter ended June, confirming the weakening economy. The broader Topix index was down 2.0 percent to close at 1,246.48.

SOUTH KOREA
The Korea Composite Stock Price Index closed down 0.91 percent at 1,562.72, led down by steel-makers and shipbuilders on a darkening outlook, while earnings fears sent airlines lower ahead of Korean Air's results Thursday.

AUSTRALIA
The S&P/ASX 200 index closed down 2 percent at 4,951.6, on concerns about slowing growth in major economies such as the U.S. and Japan, while disappointing earnings outlooks also weighed on the market. The All Ordinaries ended down 1.8 percent at 4,995.9.
   
CHINA
The benchmark Shanghai Composite Index fell for a fourth straight day to a new 19-month closing low, to end 0.44 percent lower at 2,446.30, as investors sought bargains in some oversold stocks.
   
Nonferrous metals stocks regained some lost ground in afternoon trade despite weak commodity prices, while financial stocks slid after JP Morgan Chase & Co reported that losses on its mortgage holdings widened from a quarter earlier.
   
The Shanghai A-share Index was down 0.44 percent at 2,567.67, while the Shenzhen A-share Index was up 0.42 percent at 730.97. The Shanghai B-share Index fell 1.46 percent to 161.97, while the Shenzhen
B-share Index lost 0.04 percent to 386.94.

TAIWAN
The weighted index closed down 0.02 percent at 7,292.34, as positive response to lower crude oil prices negated early weakness caused by Wall Street's overnight declines.
   
Financials were weak from the start as more concerns about the US financial industry came to light. But transportation and tourism shares rallied in reaction to the extended decline in crude oil prices. The bellwether technology sector was firmer, led by semiconductor firms, which tracked the gains of their US peers.

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Oil prices firm before US energy inventories data

LONDON - World oil prices crept higher ahead of the latest weekly report on US energy stockpiles, and amid lingering concerns about the strength of global demand, traders said.

London's Brent North Sea crude for September delivery added 37 cents to 111.52 dollars per barrel in electronic trading.

New York's main contract, light sweet crude for September delivery won back 43 cents to 113.44.  Later on Wednesday, the US government will release its weekly update on American crude oil inventories for the week ending August 8.

Market expectations are that American crude stockpiles fell by 600,000 barrels last week. Analysts have pencilled in a drop of 2.0 million barrels for US gasoline or petrol reserves.

Crude futures had slid to a four-month low on Tuesday after Russia announced the end of military operations in Georgia and the International Energy Agency forecast a steep drop in demand in advanced countries.

"We still expect oil prices to decline over the course of 2009," said David Moore, commodity strategist at Commonwealth Bank of Australia, cited by Dow Jones Newswires.

"The high level of oil prices should induce demand-side adjustments. "However, it would be wrong to think that all of the fundamental issues that contributed to the high level of oil prices over the past year have disappeared."

Dealers said fears of supply disruption had receded somewhat after Russia and Georgia agreed to a French-brokered peace plan, following Moscow's decision to halt its military offensive.

British energy giant BP said on Tuesday that it had closed an oil pipeline because of the fighting, but that supplies were flowing from the Caspian Sea to the West by other routes.

Also on Tuesday, the Paris-based International Energy Agency said that demand had eased in the 30 advanced economies in the Organisation for Economic Cooperation and Development, which groups industralised nations.

"Demand destruction is a pretty significant fact in the US and OECD," said Jason Feer, vice president with energy analysts Argus Media. "So I think it looks as though you are starting to see the impact of higher prices" on demand.

Oil prices have sunk since hitting record highs above 147 dollars one month ago as the market frets about weakening demand due to the slowing global economy. However, crude futures are more than ten percent higher than at the start of the year when they surged past 100 dollars for the first time in history.

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