US & World Daily Markets Financial Briefing 27-08-2008

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Wall St starts flat as oil offsets durables

NEW YORK - U.S. stocks were little changed at the open on Wednesday as surging oil prices offset surprisingly strong data on durable goods orders that calmed jitters about a weak economy.
   
The Dow Jones industrial average was down 6.03 points, or 0.05 percent, at 11,406.84. The Standard & Poor's 500 Index was up 0.94 point, or 0.07 percent, at 1,272.45. The Nasdaq Composite Index was down 1.02 points, or 0.04 percent, at 2,360.95.

US July durable goods orders rise 1.3% vs. 0.1% rise expected

US durable goods orders in July rose well above expectations due to strength in aircraft, machinery and autos, the Commerce Department said today.

New orders for durable goods rose 1.3% in July, the same gain recorded in June and the largest gain since December. Excluding transportation, orders were up 0.7%.

Economists polled by Thomson IFR Markets had expected a much smaller 0.1% increase for total orders and a 0.3% increase for orders excluding transportation.

Commerce upwardly revised June's total durable goods orders to 1.3% and durable goods excluding transportation to 2.4%.

Non-defense aircraft and parts orders increased 28% following a 21.3% decline in the previous month. Boeing's orders in July had increased to 70 from 62. Also contributing to total durable goods orders were gains in transportation equipment and motor vehicles and parts. Machinery saw a 4.6% increase in July.

The only order declines were seen for computers, electrical equipment and defense capital goods. The latter category declined by 25.7% following a 15.0% gain in the previous month.

Excluding defense, durable goods rose 2.8%, the largest gain since July of last year. Durable orders excluding defense and aircraft, a category used as a proxy for overall manufacturing conditions, rose 2.6% in July.

Shipments for July rose 2.5%, the largest monthly gain since July of last year while unfilled orders and inventories both rose 0.8% in the month.

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Dollar retreats from highs with Weber lifting euro

NEW YORK - The dollar slipped on Wednesday as investors bet the U.S. currency's recent jump to 2008 highs against a basket of currencies was too far, too fast given hawkish rhetoric from a European Central Bank policy-maker.

The euro got an added boost when ECB Executive Board member Axel Weber said any talk about lower interest rates in the euro zone is premature.

A government report showing an unexpected rise in new orders for long-lasting U.S. manufactured goods in July and an upwardly revised number for June helped the dollar pare losses though a persistent concern about the U.S. economy and banking system remained on investors' minds.

The dollar is "still weaker on the session, but I would expect this (data) would foster a little bit more U.S. dollar strength as the session wears on since we don't really have any other data to look forward to today," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto.

In early New York trade, the euro was up 0.6 percent on the day at $1.4732.

The dollar index, a measure of the greenback's value against six major currencies, fell 0.4 percent on the day to 76.937, having hit a 2008 high on Tuesday at 77.619.

Sterling rose 0.3 percent to $1.8450, after slumping to a two-year trough on Tuesday. The dollar fell 0.1 percent against the yen to 109.47 yen.

"There's a suggestion that the dollar's recovery has come too far, too fast," said Chris Turner, head of FX strategy at ING. "People are a bit in shock at the speed of the move in the dollar and short-term yield spreads don't justify the extent of the euro's fall."

WEBER

Weber's comments surprised investors. A batch of weak euro zone economic data had fuelled expectations that the European Central Bank's next move would be to cut rates, contributing to an 8 percent fall in the single currency against the dollar since its peak in July.

In contrast, economists expect the U.S. Federal Reserve to tighten policy but minutes of the bank's last rate-setting meeting also hinted that weak financial conditions and sluggish growth could prevent such a move.

The dollar is expected to be broadly supported by a deteriorating global economy even as the Fed seems likely to keep rates on hold in the coming months.

Other central banks in the euro zone, Britain, Australia and New Zealand are expected to lower rates at some stage in order to shield their economies from the threat of recession.

Analysts think the Fed is likely to raise U.S. interest rates by around 50 basis points from the current 2.0 percent by next August. Still, the fragile U.S. banking system remains a concern for investors.

The Federal Deposit Insurance Corp said on Tuesday that more banks than at any time since 2003 might go to the wall, and the Wall Street Journal reported that the FDIC might have to tap Treasury funds to see it through the expected wave of bank failures.

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European shares drive lower

LONDON - European stock markets declined on Wednesday, with automakers hit by the rising cost of crude oil, and amid ongoing jitters about the impact of the global credit crunch, dealers said. London's FTSE 100 index of top shares shed 0.59 percent to stand at 5,438.30 points in late morning trade.

Frankfurt's DAX 30 shed 1.15 percent to 6,267.45 points and in Paris the CAC 40 slid 1.07 percent to 4,321.88 near the half-way stage.

In the foreign exchange market, the European single currency rebounded to 1.4723 dollars after hitting a six-month low on Tuesday on fears of a potential recession in the eurozone, analysts said. Wall Street ended mixed Tuesday as data showing a rise in US consumer confidence and new home sales failed to generate enthusiasm and the US Federal Reserve offered a downbeat economic assessment.

Japanese share prices ended lower on Wednesday as investors found few reasons to buy. In world commodity markets, oil prices rose on the back of concerns that Hurricane Gustav may head for the Gulf of Mexico where many US energy installations are located, analysts said.

New York's main contract, light sweet crude for delivery in October, gained 55 cents to 116.82 dollars per barrel in electronic deals, after the hurricane slammed into Haiti on Tuesday. Oil-exposed sectors such as automakers and airlines took a hit from the rising price of crude.

In Paris, French car makers Renault and Peugeot saw their share prices dive by 2.32 percent and 2.13 percent, to stand at 56.37 euros and 32.59 euros respectively.

In Frankfurt, German peer Daimler dipped 2.44 percent to 39.71 euros and BMW lost 2.04 percent to 27.34 euros. London's real estate sector, meanwhile, was shaken by news that British housebuilder Taylor Wimpey saw its profits evaporate in the first half of the year.

Disappointed investors sent the company's share price sliding 4.75 percent to 49.53 pence on London's second-tier FTSE 250 index, which was down 0.94 percent at 9,047.80 points. On the FTSE 100, real estate group British Land shed 2.75 percent to 726 pence and peer Land Securities sank 1.75 percent to 1,293 pence.

Taylor Wimpey said it suffered a massive first-half net loss of 1.419 billion pounds because of "challenging" housing markets in Britain, Spain and the United States. Taylor Wimpey, which operates across all three countries, said in an earnings release that deteriorating property sectors had forced it to write down the value of its land.

The net loss, equivalent to 1.8 billion euros or 2.6 billion dollars, was recorded in the six months to the end of June, the group said. That compared with a net profit of 22.7 million pounds in the same period of 2007.

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Asian stock market summary

JAPAN
The benchmark Nikkei 225 Stock Average fell 0.2 percent to finish at 12,752.96, as sentiment was weighed down by worries about the global economic outlook, while investors waited for a series of key economic data in the U.S. and Japan.
   
Losses were led by property shares after home builder Sohken Homes Co said Tuesday it had filed for court protection. Auto and machinery shares also fell. The broader Topix index slipped 0.5 percent to end at 1,223.69.

SOUTH KOREA
The Korea Composite Stock Price Index closed up 0.25 percent at 1,493.92, on gains in banking issues.
However, falling tech shares continued to weigh on the index.

AUSTRALIA
The benchmark S&P/ASX 200 ended up 0.07 percent at 5,011.2, as weakness in the financial sector due to credit crunch concerns countered gains by oil producers on higher crude prices. All Ordinaries closed up 0.1 percent at 5,087.8.

CHINA
The benchmark Shanghai Composite Index closed down 0.34 percent at 2,342.15, with investors remaining cautious in the absence of government action to support the markets.
  
Brokerage stocks rose amid rumours about the introduction of margin trading, while insurers also gained ground. Airlines were hit hard after Air China and China Eastern Airlines reported a decline in first half profit, mainly due to higher jet fuel prices.
   
The Shanghai A-share Index was down 0.33 percent at 2,459.07, and the Shenzhen A-share Index fell 0.59 percent to 673.54. The Shanghai B-share Index fell 1.44 percent to 144.44, while the Shenzhen B-share Index rose 0.62 percent to 368.44.

TAIWAN
The weighted index closed up 1.67 percent at 7,080.97, as technology and financial shares rebounded. Bellwether technology shares rose on expectations their business will improve as the peak season cranks up.
   
After opening lower, the market appeared to shrug off concerns about higher oil prices and the government investigation of alleged money-laundering by former president Chen Shui-bian and his family, though a few financial firms were battered by suspicions that they might be caught up in the probe.

HONG KONG
The Hang Seng index closed up 408.06 points or 1.94 pct at the day's high of 21,464.72, after hitting a low of 21,104.56. Turnover was 60.99 bln hkd.
   
China Mobile rose 3.25 hkd or 3.48 pct to 96.55, CNOOC was up 0.42 hkd or 3.75 pct at 11.62 and PetroChina gained 0.34 hkd or 3.41 pct at 10.30.

INDIA
The benchmark Sensitive Index of the Bombay Stock Exchange closed down 185.43 points or 1.28 percent at 14,296.79 points, nearly 270 points lower than the opening level of 14,563.10. The S&P CNX Nifty of the National Stock Exchange closed down 1.05 percent at 4,292.10.

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Oil rises for 3rd day, eyes Tropical Storm Gustav

LONDON - Oil rose for a third day on Wednesday, boosted by the possibility that Tropical Storm Gustav could become the first major storm since 2005 to threaten Gulf of Mexico oil and gas installations. Crude for October delivery was up 93 cents at $117.20 a barrel by 1312 GMT, after settling up $1.16 on Tuesday. London Brent crude was up 74 cents at $115.37 a barrel.
     
Oil could head towards last week's near-three-week high of just above $122 a barrel in the next few days depending on the weather in the Gulf of Mexico, said Masaki Suematsu, analyst at broker Newedge in Tokyo.
      
"Gustav is headed right toward the centre of the Gulf of Mexico. Hurricanes taking this route are usually threatening," he said. Gustav was downgraded to a tropical storm on Wednesday after it came ashore in Haiti, but forecasters expect wind speeds to regain hurricane force.
      
Most computer models used to predict hurricane paths showed Gustav headed towards Louisiana and Texas, where rigs produce a quarter of U.S. crude oil. "Between now and the weekend, we could see crude prices encounter a fair measure of support, as the uncertain path of the storm generates the usual
consternation," said Edward Meir of broker MF Global.
     
Three years ago, Hurricanes Katrina and Rita crippled production in the region. U.S. dollar weakness, which has contributed to oil's record run this year, provided support to the market. The U.S. currency fell against the euro, after a six-month high the previous day.
       
FUNDAMENTAL IMPACT
Tensions between Russia and the West escalated after U.S. President George W. Bush condemned Russia for recognising breakaway regions in Georgia. "We are not convinced that this crisis will be bullish for the energy markets as any 'punishment' meted out by the West will steer well clear of Russia's energy sector," Meir said.
      
Oil hit a record peak of $147.27 on July 11, propelled by the weak dollar, investment inflows and concerns about the long-term supply outlook. But it has fallen back sharply since then partly in response to increased supply from Saudi Arabia, the world's biggest exporter and a drop in demand because of high prices.
      
On Tuesday, the U.S. Energy Information Administration  reported that oil demand in the world's top energy consumer in June fell 5.6 percent from a year ago. Nobuo Tanaka, executive director of the International Energy Agency, said Saudi Arabia's increase plus a drop in demand especially in the United States had helped prices to fall.
      
"The market has started responding to fundamentals," he told Reuters. "What I expect from OPEC is to keep pumping at the same level after the increase."
      
The Organization of the Petroleum Exporting Countries is due to meet next on September 9 to review output levels. The market is awaiting latest weekly oil inventory data from the EIA, due at 10:35 a.m.
    
A Reuters poll of analysts showed an average forecast for a 1 million-barrel rise in U.S. crude stocks and a 500,000 barrel build in distillates.
      
Gasoline inventories are projected to fall 2.9 million barrels, a fifth straight weekly decline, as refiners were seen drawing down inventories of summer-grade gasoline.

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