US & World Daily Markets Financial Briefing 26-08-2008

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US STOCKS-Market edges higher after economic data

NEW YORK - The S&P 500 edged higher on Tuesday, but the Nasdaq and the Dow industrials were little changed as data painted a mixed picture of the U.S. economy.

Consumer confidence for August was above Wall Street expectations and the highest since May. But a separate report showed that single-family home sales for July rose less than expected and June sales were revised lower.

The Dow Jones industrial average .DJI was down 5.62 points, or 0.05 percent, at 11,380.63. The Standard & Poor's 500 Index .SPX was up 4.63 points, or 0.37 percent, at 1,271.47. The Nasdaq Composite Index .IXIC was up 3.25 points, or 0.14 percent, at 2,368.84.

U.S. June S&P/Case-Shiller 20-city home price index down record 15.9% over year

WASHINGTON - U.S. home prices continued to plunge in June, as two key measures of home prices fell at the fastest annual pace since a survey measuring them was started more than two decades ago.
   
The S&P/Case-Shiller 20-city home price index fell a record 15.9 percent to 167.69 for the year through May, the 18th consecutive month of yearly price declines. The 10-city index fell even further over the year, declining a record 17.0 percent to 180.38.
   
However, both indices saw more moderate monthly declines than last month. The 20-city index fell 0.5 percent from May to June, while the 10-city index fell 0.6 percent over the month. These declines are far less than the 2 percent to 2.5 percent monthly drops seen earlier in 2008.
   
"While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level," says David M. Blitzer, chairman of the index committee at Standard & Poor's.
   
The index, which has a baseline of 100 for prices in January 2000, showed yearly price declines in all 20 of the cities surveyed. Las Vegas and Miami continued to post the steepest annual declines, of 28.6 percent and 28.3 percent, respectively.
   
Phoenix, which posted the third largest yearly decline, was the worst performer for the May to June period as it declined 2.6 percent over the month. Denver and Boston were the best performing markets for the month, posting increases of 1.5 percent and 1.2 percent respectively.

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FOREX - Dollar up, euro hits six-month low on grim German data

NEW YORK - The dollar rose to a six-month high against the euro on Tuesday as the single currency tumbled on weak German GDP data, which raised concerns of recession in the euro zone and fuelled expectations of interest rate cuts.
   
Adding to the euro's woes, the Ifo German business climate index in August fell more than expected to a three-year low. The dollar extended its rally of the past month, touching a 2008 high against a basket of currencies on the view that economic weakness, once thought to be limited to the United States, is spreading globally.
   
"The German number suggests that the risk of a full-blown recession in Germany is rising as the last time the number plunged to this level, Germany was in recession," said Dustin Reid, director, G11 FX Strategy at ABN AMRO in Chicago.
   
In early New York trade, the euro was down 1.1 percent at $1.4595 after falling to a low of $1.4570 after the Ifo data, its weakest since mid-February. The euro is down more than 6 percent this month and looking set for the biggest monthly fall since its 1999 launch, on the growing view that a weak euro zone economy will prompt the European Central Bank to cut rates despite high inflation.
   
German GDP contracted in the second quarter for the first time since 2004, while German consumer sentiment worsened more than expected, hitting a five-year low. "Right after the ECB rate hike in July, Germany may be falling into recession instead," said Holger Schmieding, economist at Bank of America in
London.
  
"With Spain turning down, Italy struggling, and France losing a lot of momentum too, a serious German downturn would not bode well for the euro zone as a whole as well, to put it mildly."

The dollar index rose to the year's high of 77.619, helped also by a 0.9 percent rise in the U.S. currency to 1.1058 Swiss francs as other currencies tracked the euro lower. The pound fell to its lowest in over two years against the dollar to trade as low as $1.8331.
   
The dollar was up 0.3 percent at 109.62 yen. Ongoing worries that other countries are vulnerable to U.S. economic weakness and jitters about the health of the financial services industry prompted investors to bail out of risky trades in higher-yielding currencies, pushing the Australian dollar to an 11-month low of $0.8495.
   
High-yielding currencies tend to suffer when risk aversion increases as investors exit trades where they use low-yielding currencies to fund purchases of these assets.
   
The New Zealand dollar fell to within a cent of a one-year low of $0.6818 hit earlier in the month. The currency fell under selling pressure earlier in the day, when New Zealand posted its highest monthly trade deficit in 11 months in July.
   
A slew of U.S. housing data is slated for release on Tuesday. Indicators due include S&P Case Shiller survey of home prices for June, a report on new homes sales in July, consumer confidence for August and the release of the minutes of the last FOMC meeting.

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European shares slip on weaker banks, commodities

LONDON - European shares slipped on Tuesday as concerns about the global economic and financial sector outlook kept investors jumpy and business sentiment continued to slide.
   
At 0836 GMT, the FTSEurofirst 300 index of top European shares was down 1.1 percent at 1,156.43 points. The index lost 0.6 percent on Monday, when the UK stock market was closed for a holiday.
   
Tough market conditions were highlighted by a report showing German corporate sentiment fell by more than expected in August, dragged down by a sharp deterioration in companies' business expectations.
  
Weaker consumer spending led to a contraction of the German economy in the second quarter of this year for the first time since 2004 and household morale was poised to deteriorate further, data showed. Banks were the heaviest-weighted losers on the FTSEurofirst 300, followed by energy and mining sectors that tracked weaker commodities prices.
   
Lloyds TSB  shed more than 3 percent, Bank of Ireland  fell 2.3 percent, Royal Bank of Scotland  fell 2.3 percent and Standard Chartered  declined 2.8 percent. "There are too many banks and not enough business," said Justin Urquhart-Stewart, director at 7 Investment Management.
   
"More pain is also expected in the U.S. housing market with investors still waiting for the bottom," he added. Investors await U.S. consumer confidence and new homes data later in the session for clearer market direction in the near term.
   
The FTSEurofirst 300 is down nearly 2 percent so far this month and is on track for its ninth month of losses in the last 10. Across Europe, Britain's commodity-heavy FTSE 100 was down 2 percent, Germany's DAX was down 0.4 percent and France's CAC  fell 1 percent.
   
Mining shares fell, tracking a retreat in Shanghai copper prices and other metals amid renewed concerns about Chinese demand and world economic growth. Xstrata  gave up 4.4 percent, Anglo American  slipped 4.2 percent and Antofagasta  dropped 3.8 percent.
   
The gloomy sentiment pulled Rio Tinto down more than 3 percent despite it posting better than expected results with underlying earnings up 55 percent. Weaker crude oil prices, which fell sharply in the past sessions and traded below $115 a barrel, weighed on oil and energy shares.
   
BP , Royal Dutch Shell , Tullow Oil  and BG Group fell between 2.3 and 3.5 percent. Investors remained cautious in picking stocks, as the global economic outlook continued to be poor. The International Monetary Fund has trimmed its world economic growth forecasts for this year and next, largely due to a marked worsening in its outlook for the euro zone, a G20 finance official told Reuters on Monday.
   
"Poor growth figures from the IMF is a another dose of realism for Europe. The Eurozone lags the U.S. and the UK and this is more evidence that there has been too much overspending and it is likely Merkel and Sarkozy will have to implement reform processes for things to start to improve," said Stewart.
   
Underlining difficult market conditions, data showed that German consumer sentiment deteriorated by more than expected heading into next month, hurt by concerns about the economic outlook and hitting a fresh 5-year low.

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Asian stock market summary

JAPAN
The benchmark Nikkei fell 0.8 percent to close at 12,778.71, erasing some of the previous day's sharp gains on fresh concerns about the U.S. financial sector while a firmer yen dragged down exporters. The broader Topix index slipped 0.8 percent to end at 1,229.35.

SOUTH KOREA
The Korea Composite Stock Price Index closed down 0.79 percent at 1,490.25, led by technology issues such as Samsung Electronics; but car makers and stocks in the telecommunications sector rose.
   
AUSTRALIA
The benchmark S&P/ASX 200 fell to close 0.1 percent at 5,007.5, as bargain hunters selectively bought oversold stocks such as Australia & New Zealand Banking Group Ltd.
   
All Ordinaries ended down 0.1 percent at 5,082.3.

CHINA
The benchmark Shanghai Composite Index closed down 2.62 percent at 2,350.08, with sentiment extremely weak as mainland authorities continue to hold off from announcing substantial initiatives to boost the market.
   
They said a weaker Wall Street close arising from worries about the financial sector's health also affected the market sentiment. Securities firms were sharply lower as stock market turnover remained low, while airlines and oil refiners fell after a rise in crude oil prices.
   
The Shanghai A-share Index was down 2.61 percent at 2,467.29, while the Shenzhen A-share Index fell 4.04 percent to 677.54. The Shanghai B-share Index fell 5.49 percent to 146.55, while the Shenzhen B-share Index lost 2.30 percent to 366.19.

TAIWAN
The weighted index closed down 0.94 percent at 6,964.60, following steep losses on Wall Street amid fresh fears that credit-related losses will widen at global financial institutions.
   
Dealers noted worries over Taiwan's export-orders data released on Monday, which showed a sharp deceleration in orders growth from China and Hong Kong last month. Financial stocks took a cue from the sector's fall in the U.S., while technology firms were also lower.

HONG KONG
The Hang Seng index closed down 48.13 points or 0.23 pct at 21,056.66, off a low of 20,785.8 and high of 21,173.56.  Turnover was low at 47.13 bln hkd.

INDIA
India's benchmark Sensitive Index of the Bombay Stock Exchange closed 31.87 points or 0.22 percent higher at 14,482.22, nearly 200 points up from the day's low of 14,286.38. The S&P CNX Nifty of the National Stock Exchange gained 2.15 points or 0.05 percent to end at 4,337.50.

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Oil prices slip on demand fears

LONDON - Oil prices fell on Tuesday as weak German data stoked concerns about slowing global economic growth and lower demand for energy, analysts said. Crude also slipped on the strengthening US currency, which makes dollar-priced crude more expensive for foreign buyers and tends to dampen demand.

New York's main contract, light sweet crude for delivery in October, fell 67 cents to $114.44 a barrel. London's Brent North Sea crude for October slid 64 cents to $113.39. Germany's economy contracted by 0.5 percent in the second quarter of 2008, compared with the previous three-month period, official data confirmed Tuesday.

"Crude futures were lower ... as poor German data highlighted the frailties of the European economy and once again sparked fears that a global slowdown would result in reduced demand for oil," said Sucden analyst Nimit Khamar.

"Data showed the German economy contracted in the second quarter for the first time since 2004, while the German business climate index data slipped from 97.5 in July to 94.8 in August, much worse than expected," Khamar said, citing a key report released Tuesday.

On the foreign exchange market, the European single currency slumped to a six-month low of $1.4571, which was last seen in February, after the release of the data in the eurozone's biggest economy.

The strong dollar placed "further downward pressure on oil, as it reduces the purchasing power of market participants using other currencies," Khamar said. Traders remained worried about a hurricane that could threaten US energy facilities in the Gulf of Mexico.

Tropical Storm Gustav grew into a hurricane Tuesday after emerging in the Caribbean, threatening Haiti with powerful winds less than two weeks after the country was hit by a deadly storm. Gustav gained strength as it approached the impoverished island, packing winds of 135 kilometers per hour (85 miles), the US National Hurricane Center said in its latest advisory at 0900 GMT.

Crude oil prices have sunk from record highs above 147 dollars a barrel in early July after surging from 100 dollars at the start of the year. Analysts say the struggling economy in the United States, the world's biggest energy consumer, has helped curb demand for oil.

Oil prices had edged higher Monday as the major Baku-Tblisi-Ceyhan (BTC) pipeline resumed operations after repairs from a fire and amid fresh unrest in Nigeria's oil-rich south. Last Friday, crude had plunged by more than six dollars a barrel as geopolitical concerns eased.

"Losses were driven by a combination of dollar strengthening and an easing in geopolitical tensions as Russia withdrew from Georgia, reducing the risk premium as many expected the situation to continue," said analysts at the John Hall Associates consultancy. Supply concerns ebbed after the BTC link carrying crude from Azerbaijan to Turkey was once again operating after repairs from a fire three weeks ago.

The BTC, the world's second-longest pipeline, was shut on August 5 after a blast in a pump at a section in eastern Turkey sparked a fire.

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