US & World Daily Markets Financial Briefing 14-08-2008

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US STOCKS-Lower open seen on inflation, jobs worry

NEW YORK - U.S. stocks headed for a lower open on Thursday following data that showed consumer price pressures mounted in July and the labor market weakened, clouding the corporate profit outlook.

The Labor Department's Consumer Price Index rose at twice the rate expected in July for the fastest year-over-year inflation rate in 17-1/2 years. The jump was blamed on costlier energy and food costs.

Investors fear higher inflation could hinder the Federal Reserve's effort to keep interest rates low and kick start the economy, weakened by the housing slump. In addition, the data showing continued deterioration in the labor market could fuel pessimism among consumers, already struggling with sliding home values and mounting home foreclosures.

"The overall picture is that inflation is still on the Fed's radar screen. We don't expect the Fed to change rate policy any time soon," said Dana Saporta, economist at Dresdner Kleinwort Securities in New York.

S&P 500 futures  fell 6.20 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures declined 42 points and Nasdaq 100  futures slid 5.25 points.

The reports on July CPI and weekly jobless claims overshadowed news of a stronger-than-expected quarterly profit from Wal-Mart Stores Inc . In the latest week, the number of people filing new claims for jobless benefits fell but the level of claims was well above economists' expectations, suggesting labor market strain.

The number of individuals filing new claims for unemployment insurance fell in the latest week, while the number of individuals continuing to file claims for unemployment rose unexpectedly to a high not seen in four and a half years, the Labor Department said today.
   
The number of first-time claims filed in the week ending August 9 fell 10,000 to 450,000. Economists polled by Thomson Reuters IFR Markets were expecting claims to experience a steeper fall, to 440,000.
   
The four week moving average for initial claims rose by 19,500 to 440,500, the highest level since April 2002. Economists prefer the four week moving average because it smoothes out fluctuations in weekly data.
  
The number of people continuing to receive unemployment insurance in the week ending August 2 rose by 114,000 to 3.417 mln, the highest level since November 2003. Economists were expecting continuing claims to fall to 3.3 mln.
   
The four-week moving average for continuing unemployment claims increased by 75,250 to 3.274 mln, the highest level since December 2003.

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Forex - Euro steady at 1.49 dollars as euro zone economy shrinks

LONDON - The euro held steady around the 1.49 dollar mark but off earlier highs after official figures confirmed market expectations that the 15-nation single currency zone shrank for the first time in almost a decade.

Eurostat reported that GDP in the euro zone fell by 0.2 percent in the second quarter from the first quarter for a 1.5 percent year-on-year gain. Both were in line with expectations.

The markets also brushed aside news that inflation in the euro zone during July was not as bad as initially feared. Eurostat said the annual harmonised index of consumer prices rose a final 4.0 percent year-on-year in July, down from the provisional estimate of 4.1 percent.

"The euro hit fresh session and intraday highs ahead of the data brace with spot edging into the 1.4930 dollars. However, following the data the pullback has continued with spot now dipping back towards support into 1.4900," he added.," said Matthew Foster-Smith, analyst at Thomson IFR Markets.

The main driver behind the earlier march ahead was the news that the German economy, the euro zone's largest, did not contract as much as expected. The 0.5 percent quarterly decline in the second quarter was lower than the 0.9 percent predicted by many economists.

Despite the contraction of the euro zone economy, analysts dismissed talk the European Central Bank will be cutting interest rates soon as its eyes remain focused on inflationary pressures. Inflation at 4.0 percent is double its target rate.

"If euro area GDP growth in the third quarter does show some positive growth, then in our view the ECB is unlikely to yield to pressure for lower rates at least during this year," said Barclays Capital analyst Julian Callow.

However, the ECB could be in a position to cut rates by next year, they added. "With weakening activity and falling energy inflation bringing the headline rate down sharply in the coming months, we still expect interest rates to start falling early next year and reach 3 percent by year-end," said Jennifer McKeown, European economist at Capital Economics.

Attention this afternoon shifts to the U.S., where inflation figures are also published. July's CPI increase is expected to have moderated to 0.4 percent from the 1.1 percent rise recorded in June.

The pound languished near the lowest level for almost two years against the greenback, falling to 1.8678 dollars in Asian trade, after the Bank of England issued a gloomy economic outlook.

The central bank had said on Wednesday that British inflation could fall sharply toward the government's target of 2.0 percent from early 2009, which prompted traders to bet on interest rate cuts sooner than previously expected. In European trade, the pound has recovered some of its losses and is trading back above 1.87 dollars.

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UK and European stockwatch highlights to 10:10 BST

The 15 percent plunge in Theolia's share price yesterday was an "excessive" reaction to the renewable energy company's second quarter sales figures, Peter Van Assche of Dexia Securities said in a note to clients.

Shares in Serco Group Plc. climbed in midmorning trade, with Collins Stewart raising its recommendation to 'buy', whilst keeping its 540 pence target, on valuation grounds, ahead of its first-half results on August 27 2008, traders said.

Swiss Life shares were sharply lower in midmorning trade as the market sought greater clarity concerning the Swiss insurer's strategy in Germany following its purchase of a minority stake in investment advisor MLP, traders said.

Belgian brewer InBev SA. was lower following disappointing second-quarter results. Shares in Phoenix IT Group Plc. fell slightly in early deals, as it gave a mixed trading statement, leading Numis Securities to cut the stock to 'hold' from 'buy' and reduce its price target to 285 pence from 400.

Shares in British Land Plc. were higher early morning rallying with the market, despite reporting a fall in the group's net asset value and Merrill Lynch reiterating its 'underperform' stance on the company, market sources said. 

Groupe Steria rose sharply after the IT services company unveiled higher first-half sales and said it expects to surpass its full-year operating margin guidance. Shares in Bellway Plc. were lower early morning after a trading update showed the housing market remains weak with Landsbanki cutting its earning estimates for the group, market sources said.

UBS has upgraded Tecan Group A.G. to 'buy' from 'neutral', on hopes of a second-half recovery. Shares in Keller Group Plc. were higher early on, as Collins Stewart initiated coverage on the international ground engineering specialist with a 'buy' recommendation and a price target of 864 pence, according to market sources.

Shares in Hamburger Hafen un Logisitik AG. (HHLA) were higher in early morning deals after the MDAX-listed operator of the Hamburg shipping docks reported solid results for the first half of 2008 which analysts said beat expectations on all headline figures.

Shares in Autonomy Corporation Plc. rose in opening deals, as Panmure Gordon upgraded the stock to 'buy' from 'hold' in anticipation of the group entering the FTSE 100.

TUI AG. rose slightly in early-morning deals largely in line with the market, with dealers and traders saying the shipping and tourism giant released second-quarter targets that largely met expectations, with net profit levels perhaps coming in slightly stronger that forecast.

Shares in Johnston Press Plc. fell in opening trade, with Landsbanki UK downgrading the stock to 'reduce' from 'hold', while repeating its 50 pence target, ahead of the company's interims on August
27, trades said.

Cheuvreux downgraded Deutz AG. to 'underperform' from 'outperform' saying it believes another profit warning from the German engineering group is unavoidable.

Shares in RWE AG. were  higher in early morning deals after the utility company's first-half results, which traders and dealers said were in line with expectations but largely uninspiring.

Credit Suisse has reinstated coverage of Air France-KLM, British Airways Plc and Lufthansa with 'underperform' ratings, according to dealers, pointing to challenges of higher jet fuel prices and a bleak economic outlook. Cheuvreux downgraded K+S to 'Underperform' from 'selected list', saying investors should take profits now as potash prices could start to turn lower after recent peaks.

Shares in Logica Plc. were higher early morning after the group's first-half results beat consensus with Deutsche Bank reiterating its 'buy' stance and price target of 145 pence, market sources said. JP Morgan has upgraded its recommendation on C.A.T. Oil Ag. to 'neutral' from 'underweight', while reducing its target to 7.40 euros from 11.30 euros, on valuation grounds, according to traders.

Cazenove downgraded Barclays to 'in-line' from 'outperform' on valuation grounds, saying the UK banking group was the best performing major European bank in the last quarter having risen 21 percent. Hochtief AG was higher in pre-bourse deals after the MDAX-listed construction company released strong quarterly numbers, although analysts said a capital increase at its Leighton unit could put slightly restrict share price gains.

Shares in ThyssenKrupp AG. were higher in pre-bourse trade after the steel giant released third-quarter figures slightly above expectations in key areas, and it raised its pretax guidance for the year. UBS has upgraded JKX Oil & Gas Plc. to 'buy' from 'neutral', according to dealers, on valuation grounds.

Credit Suisse has cut Danske Bank AS to 'neutral' from 'outperform' and reduced its target on the share to 182 Danish crowns from 219 in response to last week's first half earnings report, according to market sources.

HSBC has downgraded its recommendation on Alten to 'underweight' from 'neutral', whilst raising its target to 24 pence from 21 pence, on valuation grounds, traders said. Citigroup has downgraded BMW to 'sell' from 'hold' with the target cut to 28 euros from 33 euros, market source said.

Shares in Salzgitter AG. were higher in pre-bourse trade as dealers said first half year numbers for the MDAX-listed steel producer came in stronger than expected, with the bottom line looking especially impressive, and the company raised its 2008 outlook.

HSBC has downgraded its recommendation on Halfords Group Plc. to 'underweight' from 'neutral', whilst repeating its 285 pence target, on valuation grounds, traders said.Morgan Stanley has downgraded its recommendation on L'Oreal SA to 'underweight' from 'equal-weight', according to dealers, and cut the target to 60 euros, from 82 euros, with the broker saying earnings estimates are still too high.

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Asian stock market summary

JAPAN
The benchmark Nikkei 225 Stock Average dipped 0.5 percent to close at 12,956.80, led by real estate stocks in reaction to Urban Corp's move to seek court protection, while financial shares continued to weigh.
 
Investors also braced for key economic data overseas, including the U.S. consumer inflation data and economic growth figures in the euro zone. The broader Topix index slipped 0.6 percent to end at 1,238.93.

SOUTH KOREA
The Korea Composite Stock Price Index closed up 0.61 percent at 1,572.19, with heavy industry issues rebounding after their latest steep losses, while banks advanced led by Kookmin Bank, which rallied after announcing share buyback plans.
 
AUSTRALIA
The S&P/ASX 200 rose 0.6 percent to finish at 4,981.1, as falls in banks on credit worries offset gains in heavyweight resource stocks such as BHP Billion Ltd. All Ordinaries closed up 0.9 percent at 5,039.0.

CHINA
The benchmark Shanghai Composite Index fell for a fifth straight day to a new 19-month closing low, down 0.38 percent at 2,437.08, with investors worried about economic growth after the latest industrial output indicators.
   
The National Bureau of Statistics announced Thursday that industrial value-added output in July was up 14.7 pct year-on-year, slowing from a 16 pct rise in June.
   
The Shanghai A-share Index was down 0.38 percent at 2,557.85, while the Shenzhen A-share Index was up 0.23 percent at 732.64.
   
The Shanghai B-share Index rose 0.92 percent to 163.47, while the Shenzhen B-share Index fell 0.21 percent to 386.12.

TAIWAN
The weighted index closed up 0.46 percent at 7,326.07, as late bargain hunting and short covering overcame early weakness prompted by Wall Street's lower close overnight on disappointing US retail sales and a rebound in crude oil prices.
   
The tourism sector was strong throughout the session following a report that Taiwan is likely to receive 180,000 tourists from China by the end of the year.
   
Arrivals from the mainland have been disappointingly low since last month when Taipei and Beijing liberalized the cross-strait air services and tourism regime.

HONG KONG
The Hang Seng index closed up 99.39 points or 0.47 pct at 21,392.71, off a low of 21,109.01 and high of 21,453.48. Turnover was 61.15 bln hkd.

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Gold up on firm oil, eyes economic data

LONDON - Gold gained around 1 percent on Thursday after a jump in oil prices triggered bargain buying and investors eyed a flurry of economic data from both sides of the Atlantic.

On Tuesday, gold tumbled to its lowest level this year. Platinum rose around 1 percent and other metals also tracked gold's gains to defy a rising dollar. Investors digested the release of Eurozone inflation and second quarter GDP figures and await U.S. July consumer price index and weekly jobless claims data due at 1230 GMT which could set the tone for the greenback.

"The rally in oil has helped the whole metals complex move higher," said metals strategist Tom Kendall at Mitsubishi.

Gold  rose to $831.30/832.10 an ounce by 0950 GMT from $825.85/826.85 late in New York on Wednesday, when it jumped more than 1 percent. The metal was off an eight-month low of $801.90 ounce hit on Tuesday.

In theory, expensive oil lifts gold's appeal as a hedge against inflation. Rising oil , which gained 35 cents to $116.35 a barrel on declines in inventories in the United States, the top consumer, also made gold more attractive.

The euro zone economy shrank in line with expectations quarter-on-quarter in the April-June period for the first time since measurements for the single currency area began in 1995, the European Union's statistics office said. Annual inflation in the euro zone was smaller than earlier estimated at 4.0 percent, rather than 4.1 percent, the European Union's statistics office said.

The euro  remained under pressure after the data and the dollar index, which gauges its performance against six major currencies, gained 0.20 percent to 76.400 -- not far off a six-month high reached this week. "The eurozone data will set the tone for the next few hours and then for sure the U.S. CPI data and jobless claims will be key when the U.S. starts trading," Mitsubishi's Kendall said.

Gold, which struck an all-time high at $1,030.80 in March, has lost much of the gains to profit-taking, oil's decline from record highs and more recently the dollar's rally against a basket of currencies which reduced the metal's safe-haven appeal.

"I think the lower price has attracted buyers into the market. Given the extreme volatility of the gold price in recent days, I think picking the near-term direction is very difficult," said David Moore, an analyst at Commonwealth Bank of Australia.

Silver  edged up to $14.88/114.95 an ounce from $14.82/14.88 late in New York. "Silver is tracking gold, platinum has seen some good interest both from industrial consumers and some of the funds are starting to get long again," Kendall said.

Spot platinum  rose to $1,514.50/1,534.50 an ounce from $1,501.50/1,521.50 late in New York. Platinum dropped to an eight-month low at  $1,462 earlier this week.  Spot palladium  rose to $317.00/325.00 an ounce from $314.00/322.00 an ounce.

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