US & World Daily Markets Financial Briefing 19-06-2008

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U.S. weekly jobless claims fall 5,000 to 381,000

In early deals, the Dow Jones Industrial Average was 31.90 points weaker at 11,997.10, while the Nasdaq Composite slipped 15.20 at 2,414.51 and the S&P 500 index dipped 1.35 at 1,336.46.
   
The number of first-time claims filed in the week ending June 14 fell by 5,000 to 381,000. Economists polled by Thomson Reuters IFR Markets were expecting claims to fall further, to 375,000. 
   
Despite the smaller-than-expected decline in the latest week, the level of initial claims are still in recession territory, "at least if the experience of 2001 is a guide," said Ian Shepherdson of High Freqency Economics. He noted that the eight-week moving average of claims in early March -- the very beginning of the recession in that year -- totalled just 362,000, with claims rising rapidly thereafter. 
   
Shepherdson says he doesn't expect that to happen in the current downturn, "but the key point here is that the pace of layoffs is now quite high, with no prospect of any reversal or even a levelling-off in the near future."
   
Even so, claims "remain low enough to suggest the contraction in the economy has thus far been shallow," said Tony Crescenzi of Miller Tabak.
   
Meanwhile, the four-week moving average for initial claims increased by 3,250 to 375,250, the highest level since April 12. Economists prefer the four-week moving average because it smooths out fluctuations in weekly data.
   
"The slow and steady creep of the four-week moving average inside the claims series does not imply at this point that the claims series will see a positive correction in the aftermath of the settlement of the American Axel strike," said Joseph Brusuelas of Merk Investments. 
   
The massive strike at the General Motors auto parts dealer had contributed to a rise in claims earlier this year. For the week ending June 7, the number of individuals continuing to receive unemployment insurance fell by 76,000 to 3.060 million, the lowest level since April 26.

Economists were expecting claims to increase to 3.150 million from the preceding week's originally reported 3.139 million. That figure has been downwardly revised by 3,000 claims. 

"While the big drop in continuing claims is positive news, there is no clear evidence yet that continuing claims are levelling off," said Abiel Reinhart of JPMorgan Chase. The four-week moving average for continuing unemployment claims decreased by 2,000 to 3.096 million.

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Forex - Pound boosted by unexpected jump in UK retail sales figures

LONDON - The pound was boosted by an unexpected jump in official retail sales figures, which prompted the market to price in a higher probability that the Bank of England will lift interest rates soon to control inflation. The Office for National Statistics said May retail sales recorded their biggest monthly gain since records began, rising by 3.5 percent month-on-month, while the annual rate was up 8.1 percent, the highest since April 2002.

While analysts polled by Thomson Financial News had expected retail sales to hold up, they had not penciled in such a sharp rise, predicting an unchanged reading between April and May, and a smaller annual rise of 4.2 percent. "The odds of a rate hike in the next month or two just got a lot shorter," said Ross Walker, UK economist at Royal Bank of Scotland.

Analysts said that though the official figures conflict with recent evidence from surveys on high street activity, the Bank of England is unlikely to disregard it entirely. "After all, it needs to make absolutely sure that high street demand will slow enough to prevent the sharp rises in costs further back down the pipeline being passed on," said Ben May, an economist at Capital Economics.

The data comes a day after BoE governor Mervyn King stressed that the bank will do whatever it takes to keep inflation in check, although he also indicated that the economy's current slowdown would do much of the central bank's work.

The pound briefly shot up to a daily high of 1.9714 dollars shortly after the data was released, from 1.9632 dollars prior to the release. Meanwhile, the euro briefly weakened to a daily low of 0.7861 pounds from 0.7910 pounds.

Elsewhere, the Swiss franc remained on the backfoot after the Swiss National Bank left the three-month Libor rate range unchanged at 2.25-3.25 percent unchanged for the third consecutive time, even though it raised its inflation forecasts. "Many had expected such a verdict but some had hoped the central bank may turn proactive on inflation and hike rates by 25 basis points," said Matthew Foster-Smith, an analyst at Thomson Reuters IFR Markets.

With little in the way of data due in the euro zone, attention will turn to the United States where weekly jobless figures and the Philadelphia Fed survey of manufacturing conditions are due.

First-time claims for unemployment insurance are expected to fall to 375,000 in the week ending June 14, from 384,000 in the previous week.

However, the number of individuals continuing to file claims for unemployment is expected to rise to 3.150 million in the week ending May 31, from a more than four year high of 3.139 million in the previous week. The Philadelphia Fed survey of manufacturing conditions is expected to improve in June to -10.0 from -15.6 in the previous month.

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Euroshares open lower after Wall Street, Asia losses; financials weigh

At 9.11 a.m., the DJ STOXX 50 was down 7.39 points, or 0.24 percent, at 2,982.2 and the DJ STOXX 600 was down 1.4 points, or 0.46 percent, at 300.35.

Stocks in the financial sector were -- once again -- tracking their U.S. peers and global markets lower, with Credit Agricole down 2.63 percent and Deutsche Bank down 1.93 percent.

HBOS dropped 5.88 percent after its trading update. Merrill Lynch repeated its 'underperform' stance. UBS fell back 1.53 percent as Credit Suisse cut its recommendation to 'neutral' form 'outperform'.

EADS fell another 2.66 percent after rival Boeing won its appeal against a decision to award a $35 billion contract to the group. The Government Accountability Office upheld Boeing's protest and recommended the Air Force hold a new competition.

Tiscali dropped 6.72 percent after reports that Vodafone Plc. has pulled out of the auction to buy the Italian internet service provider because of a disagreement over its valuation. Venture Production fell back 3.04 percent after Goldman Sachs cut its rating to 'neutral' from 'buy'.

Most other oil plays were higher, though after the broker upgraded its estimates across the sector and lifted its ratings on Total, up 1.76 percent, and Cairn Energy, up 3.01 percent, to 'buy' from 'neutral'

Even ENI, up 0.41 percent, which Goldman Sachs downgraded to 'neutral' mustered some gains. BG, up 2.35 percent, was upgraded to 'outperform' from 'market perform'.

Cadbury, up 0.64 percent, gained after its trading statement, which Citigroup said was "strong as expected", but was off opening highs as some said the cautious outlook for the second half could lead to a downgrade to consensus forecasts.

Unilever rose 1.56 percent after Morgan Stanley said the shares have been oversold. Market watchers also said Thursday's news, that it has sold its Cote D'Ivoire edible oils business and plantation interests is welcome. "Its not their main oil business but the market has been waiting for this news for a while," said one trader.

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Asian stocks lower after Wall St fall on concerns about credit, earnings

In Australia, the S&P/ASX lost 1.4 percent to 5,366.6 and the All Ordinaries was down 1.2 percent at 5,512.7. The Nikkei 225 index slipped 2.2 percent to 14,130.17 and the Topix index was 2.4 percent lower at 1,375.60.

The Kospi was down 1.9 percent at 1,740.72, while the Hang Seng index lost 2.3 percent to 22,797.61. Financial stocks were under the most pressure because of concerns about the need for U.S. banks to tap credit markets to strengthen balance sheets, adding further to the cost of borrowing on global credit markets.

In Australia, Commonwealth Bank dropped 1.8 percent to A$39.90, National Australia Bank fell 3.9 percent to A$26.51, ANZ dropped 4.3 percent to A$18.68, Westpac lost 4.2 percent to A$21.08 and St. George tumbled 4.6 percent to A$28.60.

In Tokyo, Mitsubishi Sumitomo Financial Group fell 4.7 percent to 896,000 yen, Mizuho Financial Group shed 3.7 percent to 549,000 yen and Mitsubishi UFJ Financial Group was down 3.6 percent at 1,038 yen.

Banks dragged down the South Korean market. Kookmin Bank dropped 2.7 percent to 61,800 won, Shinhan Financial Group also lost 2.7 percent to 47,300 won and Woori Finance Holdings declined 2.2 percent to 17,950 won.

In Hong Kong, HSBC lost 1.5 hkd or 1.19 pct at 124.4, China Mobile down 1.6 hkd or 1.47 pct at 107.0, China Life lost 0.80 hkd or 2.75 pct at 28.3, Hong Kong Exchange & Clearing was down 4.3 hkd or 3.37 pct at 123.40.

Banks also fell after Hong Kong's de facto central bank advised lenders to watch out for any deterioration in their credit portfolio, especially their exposure to mainland companies.

"The default risk of non-financial mainland companies needs to be watched closely," the banking watchdog said. Lending to Chinese companies had jumped 58.7 percent to HK$891 billion at end-March from September last year as mainland firms sought loans in Hong Kong amid difficulty in getting cash from banks in China due to tighter macroeconomic measures.

The benchmark Shanghai Composite Index closed down 6.54 percent at 2,748.87, the second biggest single-day percentage drop this month, following the 7.73 percent fall on June 10 in reaction to the full percentage point hike in the bank reserve requirement.

Elsewhere, the Taiwan weighted index was down 2.1 percent at 8,047.74 and the Philippine composite index lost 1.4 percent to 2,592.59. The Indonesian composite index closed up 0.4 percent at 2,373.06.

The Kuala Lumpur Composite Index (KLCI) finished the day down 1.3 percent at 1,196.39.

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Metals - Gold steady near $890/oz; inflation concerns offset by firmer dollar

LONDON - Gold was steady near 890/oz on Thursday as ongoing inflation concerns were offset by a firmer tone in the U.S. dollar.

At 11:20 a.m., spot gold was trading at $887.60/oz against $891.75/oz in late New York trade on Wednesday.

With oil prices still above $136 a barrel, heightened inflation concerns have kept the precious metal well supported as investors buy into bullion to hedge against rising costs.

However, gains have been capped by a firmer tone in the U.S. dollar today. The precious metal tends to move counter to the greenback as it is seen as an alternative asset to the most common form of currency reserves.

UBS analyst John Reade said: "We hold our one month forecast for gold at $900/oz. Although we believe gold is set for a big move, we are unsure of which direction. While the market remains above the 200-day moving average we remain cautiously bullish."

Among other precious metals, platinum was trading down at $2,072/oz against $2,091/oz in late New York trades on Wednesday.

Sister metal palladium slipped to $462/oz from $470/oz, while silver was lower at $17.27/oz from $17.34/oz.

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