US & World Daily Markets Financial Briefing 23-07-2008

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Stocks fluctuate following mixed profit reports

NEW YORK - Wall Street fluctuated Wednesday after another drop in oil prices blunted reaction to a mixed set of earnings reports.

Investors believe the drop in oil, if it lasts, will boost the slumping economy. Crude has retreated nearly $5 a barrel in the past two sessions as Hurricane Dolly looked likely to spare key oil installations in the Gulf of Mexico; it's down more than $20 since hitting a record above $147 just weeks ago.

A barrel of light, sweet crude fell $1.86 to $126.56 on the New York Mercantile Exchange.  A drop in energy prices would benefit a wide spectrum of companies, including airlines, manufacturers and even retailers. It also helped distract investors from some disappointing earnings delivered this week -- especially from struggling banks and brokerages.

Investors sifted through a raft of earnings news on Wednesday, including a profit warning from warehouse retailer Costco Wholesale Corp. Dow Jones industrial average components McDonald's Corp., Pfizer Inc. and AT&T Inc. all posted results.

In the first hour of trading, the Dow rose 17.42, or 0.15 percent, to 11,619.92. On Tuesday, it rose 135 points. Broader stock indicators advanced. The Standard & Poor's 500 index rose 6.58, or 0.52 percent, to 1,283.58 and the Nasdaq composite index rose 19.96, or 0.87 percent, to 2,323.92.

Bond prices declined as investors moved some money into equities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.13 percent from 4.10 percent from late Tuesday.

The dollar was higher against other major currencies, while gold prices fell. McDonald's credited strong overseas sales with driving the company's second-quarter profit. The nation's largest restaurant chain easily surpassed Wall Street's expectations. The stock fell 26 cents to $59.86.

AT&T rose 53 cents to $35.35 after the company said quarterly profits rose amid a big spike in wireless subscribers that offset its shrinking landline business. The biggest U.S. phone company is the official carrier of Apple Inc.'s iPhone, and that helped add 1.3 million wireless subscribers during the period.

Pfizer, the world's biggest drugmaker, said its second-quarter earnings more than doubled as restructuring charges declined and the weak dollar helped lift overseas revenue. It narrowly beat Wall Street expectations. The stock rose 30 cents to $18.65.

Boeing Co. fell $2.78, or 4 percent, to $66.48 after reporting that second-quarter earnings fell 19 percent because a $248 million charge related to a defense program. The world's second-largest commercial airplane maker had already warned it would book the expense.

Washington Mutual Inc. rose 18 cents, or 3.1 percent, to $6 after the nation's largest thrift reported a $3 billion loss due to increases in its loss reserves to cover souring loans in its mortgage portfolio.

Costco warned that its fiscal fourth-quarter and full-year profits will fall short of Wall Street's expectations. The warehouse club operator expects higher energy costs to hurt its results. The stock fell $7.98, or 11 percent, to $64.02.

Fannie Mae and Freddie Mac advanced as the House planned to vote Wednesday on legislation that would tap the mortgage giants' profits to cover any losses from saving 400,000 homeowners from foreclosure. The measure would give the Treasury Department authority to extend the companies a temporary lifeline. Fannie Mae rose $2.05, or 15.3 percent, to $15.46, while Freddie Mace rose 99 cents, or 10 percent, to $10.69.

In economic news, the Federal Reserve is expected to release its Beige Book, an analysis of regional economic conditions, at 2 p.m. EDT. Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange, where volume came to 225.3 million shares.

The Russell 2000 index of smaller companies rose 4.67, or 0.65 percent, to 721.49. Overseas, Japan's Nikkei stock average rose 0.97 percent. In afternoon trading, Britain's FTSE 100 added 1.11 percent, Germany's DAX index rose 0.88 percent, and France's CAC-40 rose 1.31 percent.

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Forex - Dollar propped up by lower oil prices

LONDON - The dollar continued to be propped up against the euro by lower oil prices and renewed speculation about possible U.S. interest rate hikes. With oil prices down below $127 a barrel from a peak of $147 just a couple of weeks ago, there is hope that the U.S. economy may recover sooner than
expected, lending support to the beleaguered U.S. currency.
   
At 1115 GMT, the euro was down at $1.5735 from $1.5809 earlier. That fall comes after yesterday's near 1 percent decline. "A sustained move lower (in oil prices) would clearly pave the way for central banks globally to ease restrictive monetary stances that would be favourable for the dollar," said economist Derek Halpenny at The Bank of Tokyo-Mitsubishi UFJ in London.
   
Also providing the dollar some support was the inflation warning from the Federal Reserve's Charles Plosser. Plosser said rising inflation could force the Fed to start raising rates even before labour and financial markets recover, giving a big lift to the dollar. While Plosser is seen as one of the most hawkish members of the Fed's rate-setting committee, his remarks rekindled speculation about possible U.S.
rate hikes that could boost the dollar.
   
The dollar also received some support after U.S. Treasury Secretary Hank Paulson said on Tuesday a strong dollar is "really very important". "The dollar has recovered sharply against nearly all major currencies with reassuring comments from Paulson and hawkish comments from Plosser cited as key
factors that triggered the rebound," said Halpenny.
   
After Tuesday's jump, the dollar finished above its 200-day moving average against the yen for the first time in a year, which analysts consider a strong positive technical signal.

"In some ways, the yen is caught between a rock and a hard place: the yen has been shunned due to the Bank of Japan's inability to fight inflation and could now be second choice to the dollar due to the limited scope for stimulus to the Japanese economy," said Neil Mellor, currency strategist at Bank of New York Mellon.
   
At 1115 GMT, the dollar was trading at 107.78 yen, having hit 107.90 earlier. Despite the dollar's recovery, traders were wary of pushing the dollar too high ahead of U.S. housing-related data later in the week, fearing that long positions on the greenback would be at risk should the numbers disappoint and
thus knock the wind out of U.S. stocks.
   
Figures for U.S. existing home sales will be released on Thursday and new home sales data will be out on Friday. Also of interest among market watchers is whether Plosser's hawkish stance on monetary policy is an isolated one, or if it will resonate with other Fed Board members.
   
In particular, Fed Board member Frederic Mishkin's appearance at a Bank of Canada economic conference in Ottawa later on Wednesday is being carefully watched. Elsewhere, the pound was back near the $2 dollar mark after a hawkish set of minutes to the last rate-setting meeting at the Bank of England.
   
The Monetary Policy Committee was split three ways on the vote -- a majority of seven opting for unchanged rates, the typically dovish David Blanchflower voting for a cut, and Tim Besley pushing for a hike. However, while the vote may seem balanced, Blanchflower is often seen as a maverick whereas Besley has more often been in tune with the majority of the MPC.
  
At 1115 GMT, the pound was trading at $1.9998 and the euro was trading at 0.7873 pounds.

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Euroshares - STMicro, KPN, Peugeot cheer

At 8.57 a.m., the DJ STOXX 50 was up 28.53 points, or 1.01 percent, at 2859.81 and the DJ STOXX 600 was up 3.01 points, or 1.07 percent, at 283.91.

In Europe, tech stocks are in focus again as STMicroelectronics reported a second quarter net loss was $47 million, or 5 cents per share, compared with a loss of $758 million, or 84 cents per share, during the year-ago period.

Excluding one off charges, STMicroelectronics would have made a profit of 18 cents per share, 4 cents higher than the average estimate of analysts polled by Thomson Financial.

Shares added 3.27 percent, rallying from losses Tuesday to post a disappointing update from Texas Instruments. Infineon also recovered some of Tuesday's losses to trade up 2.79 percent.

Dutch telecoms group KPN stormed 4.15 percent higher as the group reported in-line second quarter numbers and raised its 2008 EBITDA guidance for the Netherlands.

The group also said it will pay a dividend of 20 cents, higher than the 19 cents consensus forecast.

But Telenor ASA dropped 4.56 percent after it cut its full year sales growth target and warned that currency fluctuations could continue to affect its results for at least the next six months.

Elsewhere, Peugeot SA stormed 8.01 percent higher after it posted a sharp rise in first-half profits, supported by its CAP 2010 recovery programme, and reiterated its sales and operating margin targets for the full year.

Peer Renault added 2.69 percent

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Asian stock market summary

JAPAN

The Nikkei 225 Stock Average finished 1 percent at 13,312.93, after U.S. equities rebounded overnight while a weaker yen bolstered interest in exporters such as Honda Motor. Banks gained ground as investors moved to cover short positions amid easing worries about the credit crisis.

SOUTH KOREA

The KOSPI finished with a gain of 2.0 percent at 1,591.76, after another drop in oil prices allayed worries about the impact of high energy costs on the global economy and bolstered interest in airlines and other oil-dependent tocks.

AUSTRALIA

The benchmark S&P/ASX 200 index closed 99.7 points higher at 5,105.3, as a rop in oil prices bolstered investor sentiment, lifting consumer-related firms nd banks such as National Australia Bank Ltd. Sentiment in the banking sector was also buoyed by a string of tronger-than-expected earnings at major U.S. banks.

CHINA

The benchmark Shanghai Composite Index closed down 0.29 percent at 2,837.85, in a further consolidation after recent gains, although airlines surged following a drop in crude oil prices. Coal producers slumped, while oil refiners rose but were off their highs after crude oil tumbled 3.09 usd a barrel to settle at 127.95 usd on the New York Mercantile Exchange.
  
The Shanghai A-share Index was down 0.29 percent at 2,976.89, while the Shenzhen A-share Index fell 1.05 percent to 887.49. The Shanghai B-share Index fell 0.62 percent to 213.74, while the Shenzhen
B-share Index rose 0.29 percent to 460.65.

TAIWAN

The weighted index closed up 3.46 percent at 7,309.83, following a drop in oil prices, gains on Wall Street and better-than-expected results from some U.S. banks

PHILIPPINES

Manila's 30-company composite stock index closed up 2.2 percent at 2,462.94, posting its biggest single-day gain in five weeks and rallying with Wall Street and other Asian markets as crude oil traded $20 below an all-time high hit two weeks ago.

HONG KONG

The Hang Seng index closed up 607.07 points or 2.69 pct at 23,134.55, off a low of 23,134.55 and high of 23,134.55. Turnover was 75.79 bln hkd. The index has gained 1,960 points or 9.26 pct over the past six sessions.

INDIA

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange rose 838.08 points or 5.94 percent to 14,942.28, while the 50-share S&P CNX Nifty of the National Stock Exchange advanced 236.70 points or 5.58 percent to 4,476.80. The Sensex has soared nearly 19 percent in a five-day rally that began last Thursday.

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Metals - Copper down amid weak sentiment, stronger dollar

LONDON - A firmer dollar, profit taking and general weakness across the commodity board knocked copper lower Wednesday but some supply fears limited losses.

The dollar was propped up against the euro by lower oil prices and renewed speculation about possible U.S. interest rate hikes.

"We are broadly lower in all the metals except in zinc, as a stronger dollar and crashing oil prices weigh on the complex," said MF Global analyst Ed Meir.

"It seems the shift away from commodities and into the equity markets is still going strong. We expect to see this momentum stay with us for a little while longer, and as long as oil prices are under attack."

In industry news for copper, BHP Billiton said Wednesday that Escondida's total output would drop 10-15 percent in 2009 and stay that way in subsequent years due to lower ore grades.

At 2:49 p.m., three-month copper on the LME fell to $8,070 per tonne from $8,130 at the close Tuesday. Aluminium was lower at $3,015 per tonne, basis three months, from $3,035.

Nickel sank to $20,325 per tonne, basis three months, from $20,500, zinc was up at $1,885 per tonne from $1,845, tin eased to $23,250 per tonne from $23,480 and lead climbed to $2,122 per tonne from $2,140 at the close Tuesday.

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