US & World Daily Markets Financial Briefing 15-08-2008

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US STOCKS-Wall St turns flat as energy shares weigh

NEW YORK - U.S. stocks were little changed on Friday, cutting opening gains, as a drop in shares of energy and oil services companies tempered optimism about consumer and business spending benefiting from lower crude prices.
      
The energy sector fell along with other global commodities as the U.S. dollar strengthened. U.S. front-month crude  declined $2.49 to $112.51 on the New York Mercantile Exchange, while shares of Exxon Mobil Corp  fell 1.5 percent to $76.26 and Chevron Corp  was off 1.6 percent to $84.51.
      
The Dow Jones industrial average edged up 10.42 points, or 0.09 percent, to 11,626.35. The Standard & Poor's 500 Index slipped to 0.02 point to 1,292.91. The Nasdaq Composite Index shed 5.39 points, or 0.22 percent, to 2,448.28.

OUTLOOK U.S. economic indicators to be released in the coming week

                                                 FORECAST        PREVIOUS

MONDAY, AUGUST 18

US August Homebuilders Index
monthly level (index)                               16              16

TUESDAY, AUGUST 19

US July Housing Starts
annual rate (thousands)                            950           1,066

US July Building Permits
annual rate (thousands)                            920           1,138

US July PPI
monthly change (pct)                               0.4             1.8

US July PPI year-over-year
yearly change (pct)                                9.0             9.2

US July Core PPI
monthly change (pct)                               0.2             0.2

US July Core PPI year-over-year
yearly change (pct)                                3.1             3.0

THURSDAY, AUGUST 21

US Initial jobless claims, 08/16
weekly level (thousands)                           418             450

US Continuing jobless claims, 08/09
weekly level (mln)                               3.300           3.417

US August Philly Fed Survey
annual rate (mln)                                -13.5           -16.3

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Forex - Dollar rally continues, helped by U.S. data, drop in gold

LONDON - The dollar stayed well bid, continuing its fine run since the start of the week, with the latest evidence pointing to increased appetite for U.S. securities.

Data out today showed foreign demand for US securities rose sharply in June, driven in part by an increase in private purchases of Treasury bonds and notes but also by increased bank holdings of dollar-denominated liabilities, the Treasury Department reported today.

In its monthly Treasury International Capital (TIC) report, Treasury said net purchases of US securities grew to $51.1 bln in June from an upwardly revised $12.3 billion in May.

The dollar was also boosted by gold's tumble below $800 which led investors to unwind their bets against the dollar and driving the U.S. currency's trade-weighted index up to a six-month high.

Analysts believe the dollar is being supported by fears for the euro zone and Asian economies, despite the fact that U.S. economic data continues to come in on the weak side.

"The dollar's apparent failure to respond to weak U.S. economic data reinforces the market's impression that the dollar continues to be driven by improving relative U.S. growth differentials," said Lee Hardman, currency strategist at Bank of Tokyo-Mitsubishi.

At 1316 GMT the euro was trading at $1.4726, just off a low of $1.4697 - the lowest level seen since February this year.

Elsewhere the pound was also under pressure against the dollar, falling to a fresh two-year low as expectations the next move in UK interest rates will be down continued to mount. The Bank of England's Inflation Report on Wednesday had a more dovish tone than many investors were expecting, indicating that inflation will eventually fall below the Bank's 2.0 percent target if borrowing costs stay at their current level of 5.0 percent.

"The pound will stay under the pressure as rate cut speculation is likely to build in the coming weeks - a rate cut as early as November is now possible," said analysts at BNP Paribas.

At 1316 GMT the pound was trading at $1.8651, just off a low hit earlier of  $1.8510, its lowest level since August 2006. Meanwhile the euro was trading at 0.7894 pence, off a day low of 0.7888 pence.

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European shares up by midday, helped by weaker oil

European shares rose by midday on Friday as a weaker oil price boosted leisure and consumer stocks, while commodity shares fell in concert with easing raw material prices.
   
By 1050 GMT, the pan-European FTSEurofirst 300 index was up 0.5 percent at 1,191.06 points, adding to a 0.5-percent gain from the previous session and on track to finish the week some 0.7 percent lower.

The oil price dropped by $2 to $113 a barrel, trading near the lowest since early May, pressured by faltering global demand and rising supply, boosting consumer, travel and leisure shares. "This is a supporting factor for the automotive sector as well as for demand-driven industries as consumers feel the relief through lower fuel prices," said Markus Reinwand, equity strategist at German bank Helaba.
   
The European travel and leisure index and the DJ Stoxx European retail index as well as the DJ Stoxx European Personal and Household Goods sector index jumped more than 1 percent each. Airlines such as Ryanair  rose 4.6 percent, Air France  gained 2.3 percent and Deutsche Lufthansa  by 0.8 percent.  Oil majors such as Total  rose 0.8 percent and Royal Dutch Shell  gained 0.6 percent.
   
Among retail stocks Swedish fashion giant Hennes & Mauritz  rose 2.4 percent after posting better-than-expected July sales figures, defying an economic slowdown as cost-conscious shoppers appeared to favour its moderately priced clothes. Defensive pharmaceutical stocks also gained, with Sanofi-Aventis  up 2.3 percent after Warren Buffett's Berkshire Hathaway  investment group raised its stake.
   
Shares in Stada  surged 10.6 percent after a media report, citing unidentified sources, said that Teva Pharmaceutical Industries  was in talks to buy Germany's third-largest generics drugmaker. Stada and Teva declined to comment. Roche  rose 0.8 percent and Elan  added 7.2 percent.
   
Banks rose with Swiss bank UBS  rising 2.2 percent, Royal Bank of Scotland  up 1.1 percent and BNP Paribas  up 1 percent. The dollar powered to a six month high against the euro, boosted by jitters on shrinking euro area economic growth. Citigroup said the economy in the euro area is set for a longer and deeper downturn than the consensus expects.
   
"The rapid deterioration in the economy's prospects partly reflects the severity of the headwinds from the tightening in lending standards, European Central Bank's rate hikes, high commodity prices and strong euro," Citigroup said in a note.
  
The rise in the dollar sparked a sell-off in commodities and gold fell nearly 5 percent to almost a nine-month low in Europe. As a result, mining stocks had the strongest negative impact on the pan
European index, with Xstrata , Anglo American , Rio Tinto  and BHP Billiton  falling between 1.6 and 3.5 percent.
   
Around Europe, the UK's FTSE 100 index rose 0.2 percent, Germany's DAX index added 0.2 percent and France's CAC 40 gained 0.9 percent. Among major gainers, Denmark's Vestas  rose 5.5 percent after the world's No.1 wind turbine maker said its order backlog ballooned.

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Asian stock market summary

JAPAN
The benchmark Nikkei index rose 0.5 percent to 13,019.41, after a weaker yen helped export-related shares such as automakers, while a rise in a freight rates index lifted marine transportation issues.
   
But gains were limited as investors waited for fresh leads, while others stayed away from the market in observation of Japan's "Obon" holiday. The broader Topix index was 0.7 percent higher at 1,247.31.

AUSTRALIA
Shares ended virtually unchanged on Friday as losses in the resources sector on concerns about falling commodity prices offset gains by banks and Australia's top phone company, Telstra Corp Ltd.

The benchmark S&P/ASX 200 closed up 0.6 points at 4,981.7.
  
CHINA
The benchmark Shanghai Composite Index closed up 0.56 percent at 2,450.61, ending a five-day decline.
Metals and financial stocks led the gainers, while property stocks and telecoms lost ground.
   
The Shanghai A-share Index was up 0.56 percent at 2,572.10, while the Shenzhen A-share Index was down 0.24 percent at 730.90.
 
The Shanghai B-share Index rose 0.13 percent to 163.68, while the Shenzhen B-share Index gained 0.50 percent to 388.05.

TAIWAN
The weighted index closed down 1.77 percent at 7,196.50, as early gains gave way to profit-taking led by large-cap integrated circuit firm Hon Hai Precision Industry, food, construction and financial stocks.

SOUTH KOREAN FINANCIAL MARKETS WERE CLOSED FOR THE INDEPENDENCE DAY HOLIDAY.

HONG KONG
The Hang Seng index closed down 232.13 points or 1.09 pct at 21,160.58, off a low of 20,994.54 and high of 21,383.71. For the week, the index is down 725 points or 3.31 pct. Turnover was 48.96 bln hkd.

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Oil falls to $113 on bearish global demand

LONDON -  Oil dropped by $2 to $113 a barrel on Friday to trade near the lowest since early May, pressured by faltering global demand and rising supply.

Crude has fallen sharply since reaching an all-time high of $147.27 a barrel on July 11 partly on concern about weakening demand and fell as low as $112.31, the lowest since May 2, on Tuesday.

"The demand side is a major concern. Supplies from OPEC countries are rising but there is a shortage of buyers. The industrial use in China has been cut back," said Gerard Burg from National Australia Bank.

U.S. crude for September delivery fell $2.04 to $112.97 a barrel by 0818 GMT. The contract will expire on Aug. 20. London Brent's new nearby contract, October, lost $1.77 to $111.91 a barrel.

Supply has been rising as demand ebbs. Output from the Organization of the Petroleum Exporting Countries rose 145,000 barrels per day in July to 32.8 million bpd, the International Energy Agency said this week.

Oil also fell as the dollar strengthened following further proof that the U.S. economic slowdown is spreading. The economy of 15-nation euro zone contracted 0.2 percent in the second quarter, data showed on Thursday.

The euro hit a six-month low against the dollar on Friday. Weakness in the U.S. currency earlier this year had boosted the appeal of oil and commodities to investors as a hedge against inflation.

Fighting between Russia and Georgia, a key supply route from the Caspian to Europe, has lent support to oil. But analysts said diplomatic efforts to secure a peace accord reduced the risk of supply disruption.

Russian troops remain deep inside Georgian territory on Friday, hours before U.S. Secretary of State Condoleezza Rice arrives to secure Tbilisi's signature to a peace deal with Moscow.

"While still a dangerous transitional period, the fact that diplomacy will now replace military action bodes well," said Edward Meir, oil analyst at MF Global, in a report.

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