US & World Daily Markets Financial Briefing 28-08-2008

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Wall St opens higher after GDP data

NEW YORK - U.S. stocks opened higher on Thursday after second-quarter U.S. growth was revised up by much more than expected, boosting optimism about the economy.  
      
The Dow Jones industrial average was up 59.28 points, or 0.52 percent, at 11,561.79. The Standard & Poor's 500 Index was up 6.34 points, or 0.49 percent, at 1,288.00. The Nasdaq Composite Index was up 6.71 points, or 0.28 percent, at 2,389.17.

Oil companies, gov'ts brace for worst from Gustav

Energy companies and governments prepared on Thursday for a possible major hit on the heart of U.S. offshore oil and natural gas production in the Gulf of Mexico from Tropical Storm Gustav.

The International Energy Agency's chief of emergency planning said the IEA's 27 member nations were prepared to release strategic oil stocks if Gustav deals a blow similar to 2005's devastating hurricanes Katrina and Rita.

Energy companies may begin shutting in production as early as Thursday with the region's largest producer, Shell Oil Co , pulling all of its 1,300 offshore workers.

U.S. crude oil prices have already risen more than $2 on the day, trading above $120 per barrel on fears the storm, which is still in the Caribbean Sea, would strike the U.S. Gulf Coast.

Conoco's Magnolia platform was shut on Monday for a non-weather related turnaround and workers from the platform will begin evacuating Thursday, the company said.

U.S. forecasters project Gustav will become a major hurricane, packing winds exceeding 111 mph (178 kph) when it enters the Gulf over the weekend.

"Based on projected track, size and strength of Gustav over the Gulf, the entirety of the Gulf Energy Production region remains under the gun and I expect a major portion of the Gulf Energy Infrastructure will be shut-in along with a significant increase in damage potential," said Planalytics Senior Energy Meteorologist Jim Rouiller in a statement.

Driller Transocean  was evacuating workers and preparing to pull more employees off of rigs in the Gulf, the company said in a statement. Apache Corp  and BP  said they were pulling nonessential workers from production platforms.

All other companies with Gulf of Mexico operations said they were carefully monitoring the storm and preparing for evacuations or to shut production.

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Dollar eases as investors mull ECB rate outlook

NEW YORK - The euro strengthened broadly on Thursday, extending its rebound from a six-month low against the dollar for a second straight day on reduced expectations the European Central Bank will cut interest rates.
   
ECB Board member Axel Weber said on Wednesday that talk about lower rates was premature, prompting traders to rethink their bets on euro zone rates. The reverberations of these remarks were still felt on Thursday.
   
The dollar pared losses after data showed the U.S. economy expanded at a 3.3 percent annual rate in the second quarter -- stronger than first reported -- but sentiment was not strong enough to send the dollar higher.
   
"The scale of easing that's priced into the market with regards to the ECB will be retraced. We're now in a more balanced environment with regards to the euro and dollar," said Derek Halpenny, senior currency economist at BTM-UFJ in London.
   
Early in New York the euro  was up 0.4 percent on the day at $1.4775, though off the session peak of 1.4807.  The dollar index fell 0.4 percent to 76.711, pulling further away from the 2008 high of 77.619 seen this week.
   
The dollar fell 0.2 percent to 109.35 yen  but was well above the session low of 108.79, boosted by the U.S. GDP report.
   
"It shows the U.S. economy in general is performing at a better level than what people probably expected two or three months ago and the U.S. has the potential to lead global growth in the second half of the year," said Dustin Reid, senior currency strategist at ABN AMRO in Chicago.
   
Still, despite the dollar benefiting since late July from growing signs that economic malaise has spread beyond the United States, doubts do remain about the ability of mortgage finance giants Fannie Mae  and Freddie Mac  to raise enough capital to sustain themselves in a troubled U.S. housing market, which may weigh on the dollar down the road.
   
ECB HOT AIR?
   
Investors have become slightly more positive about the euro in the last few sessions. Though many economists see an increasingly gloomy euro zone outlook amid tightening credit conditions, ECB policymakers like Weber and bank Vice-President Lucas Papademos say preventing a euro zone wage/price spiral and taming inflation expectations are paramount.
   
But not everyone is convinced. "We believe that the ECB talks a tough story but does not really deliver,"
said Steve Barrow, currency strategist at Standard Bank in London, adding that the ECB's last rate hike in July was little more than a "token" gesture. "It seems to us that the currency market also sees the ECB as being full of hot air."
   
Sterling was up 0.1 percent against the dollar at $1.8367  though down against the euro. The euro was up 0.3 percent against sterling at 0.8042.
 
The pound remained weak after a measure of British house prices showed the biggest annual price fall for 17 years and retail sales posted the steepest fall since records began a quarter of a century ago, indicating an increasingly fragile economy.

"The pound's in trouble," said BTM-UFJ's Halpenny. "The big problem for the UK -- and the markets are aware of it -- is the inability of the authorities to do much about it," he said, referring to Britain's fiscal deficit.
   
Traders barely reacted to a Japanese report published on Thursday saying the United States, Europe and Japan had planned to intervene and rescue a weak dollar in March.

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European shares tick up at midday led by financials

FRANKFURT - European stocks erased early losses to trade a touch higher by midday on Thursday, with financials, notably French bank Credit Agricole , among the leading gainers while car and energy stocks fell.
   
Reuters surveys of leading investment houses in the United States, continental Europe, Britain and Japan showed that an average mixed-asset portfolio held 57.4 percent in stocks in August, up from 56.7 percent in July. The long-term average is just above 60 percent for equities.
   
"Everyone wants to overweight stocks, but don't know what the catalyst for an equities recovery will be," said Brian Gendreau, an investment strategist in New York for ING Investment Management Americas.
   
Trevor Greetham, manager of Fidelity's Multi Asset Strategic Fund, which remains underweight in equities, said the world economy seemed to be heading towards stagflation.
   
"The bottom (for world economic growth) will be reached at the earliest in 2009," said Greetham, who is overweight in defensive stocks, such as telecoms and health care.
   
At 1125 GMT, the pan-European FTSEurofirst 300 index was trading 0.1 percent higher at 1,175.09 points -- on track in August for its ninth month of losses in the last 10.
   
Credit Agricole rose 7 percent despite posting a 94 percent fall in quarterly profit, hit by about 1.1 billion euros in writedowns related to the credit crisis and monoline insurers.
   
"People think that they've got the bulk of the writedowns out of the way and results in the third and fourth quarters will be better," said a London-based trader.
   
The DJ Stoxx European bank index was up 2 percent, making it the session's top sectoral gainer. It was also supported by a 4.7 percent rise for Italy's Intesa Sanpaolo , which reported a second-quarter net profit slightly above the market consensus.
   
Insurance was the second-best performer with a rise of 1.2 percent, despite a 10.5 percent slide in shares of Swiss Life  after a profit warning and first-half earnings that missed analysts' forecasts due to writedowns. "The uncertainty about Swiss Life's strategic approach has risen. Given this and the profit warnings ... we have reduced out target to 235 Swiss francs from 265 francs," WestLB said in a note.
   
Among other financials, Royal Bank of Scotland rose 4 percent after Bank of China, of which RBS owns nearly 4.5 percent, posted a forecast-beating 15 percent rise in second-quarter profit.
   
GROWTH HEADWIND
   
The European Central Bank said money supply growth and loans to the private sector in the euro zone slowed in July.
  
"The further slowdown in lending to non-financial companies suggests that tighter bank lending conditions eventually are having an impact on lending and are likely to become a headwind for capital expenditures," Citigroup said in a note.
   
Elsewhere on the economic data front, German unemployment fell in August by a bigger-than-expected 40,000 month-on-month in seasonally adjusted terms. British house prices fell almost 2 percent on the month in August.
   
Energy shares gained initially but then lost ground, with BP  down 0.1 percent, Royal Dutch Shell  down 0.5 percent and Total  down 1.2 percent.
   
"There's been a run up in the shares of late with strong earnings and now people are just cashing in," said a trader.
   
Crude oil prices  rose by more than $1 a barrel to trade above $119.5, boosted by the threat of damage to U.S. oil installations from Tropical Storm Gustav.
   
The storm is forecast to regain hurricane status as it approaches the Gulf of Mexico, home to one-quarter of U.S. crude oil production and 15 percent of its natural gas output.
   
British telecoms operator BT Group  was among leading blue-chip gainers with a rise of 3.5 percent, after Goldman Sachs upgraded the stock to "buy" from "neutral", citing its "beaten up valuation".
   
Among other European shares on the move, French glasses maker Essilor  surged 7.8 percent after it posted a rise in first-half profit and said it was stepping up share buybacks.
   
Auto stocks fell the most -- down 1.5 percent on the European sector index -- after Japanese car maker Toyota  cut its 2009 vehicle sales forecast by nearly 7 percent due to a severe downturn in Western markets driven by high fuel prices and a credit crunch.
   
Daimler  fell 2.2 percent, Renault  declined 2.2 percent and Peugeot  lost 1.7 percent.
   
Across Europe, Britain's FTSE 100 was up 0.3 percent, Germany's DAX  down 0.3 percent and the French CAC 40 unchanged.

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Asian stock market summary

JAPAN
   
The Nikkei 225 Stock Average ended up 0.1 percent at 12,768.25, off a high of 12,847.46, amid lingering uncertainty about the global economy.
   
Trading remained thin as investors continued to stay on the sidelines awaiting the release of revised U.S. economic growth data for the second quarter later on Thursday and a series of key data in Japan, including consumer inflation figures on Friday.
   
The broader TOPIX slipped 4.16 points or 0.3 percent to 1,219.53.

SOUTH KOREA
   
The Korea Composite Stock Price Index fell 1.3 percent to 1,474.15 points, led by technology issues such as Samsung Electronics on outlook worries. Carmaker Hyundai Motor fell on news of partial strikes by unionised workers.
 
AUSTRALIA
   
The benchmark S&P/ASX 200 rose 1.1 percent to 5,066.5 as rises in gold, oil and base metal prices boosted resources stocks, though Macarthur Coal Ltd. lost out after its earnings report disappointed.
   
Financial stocks also gained, including Australia's top investment bank Macquarie Group Ltd., as investors returned to the battered sector after losses on Wednesday.

CHINA
  
The benchmark Shanghai Composite Index closed up 0.34 percent at 2,350.14, supported by an extended rise in financial stocks. Property stocks fell after the central bank called on commercial banks to tighten lending to property developers.
  
The Shanghai A-share Index was up 0.34 percent at 2,467.39, while the Shenzhen A-share Index fell 0.12 percent to 672.74. The Shanghai B-share Index rose 1.04 percent to 145.95, and the Shenzhen B-share Index gained 1.78 percent to 375.02.

TAIWAN
   
The weighted index closed down 0.67 percent at 7,033.37, as United Microelectronics Corp. took the bellwether technology sector lower after police raided its offices as part of an insider trading probe.

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Copper lower on demand worries, supported by dollar

LONDON -  Copper eased on Thursday on concerns over a lack of demand from China, the world's biggest user of the metal, but prices were supported by a weaker dollar.

"People are concerned about the macroeconomic environment," said analyst Gayle Berry at Barclays Capital. "There isn't an indication of a pick-up in buying anywhere, but particularly in China where we need to see buying pick up if we are going to see prices move higher."

Copper for delivery in three months  on the London Metal Exchange fell to $7,565 per tonne at 1000 GMT from a last quote of $7,650/7,655 on Wednesday.

About 6,000 tonnes of refined copper has arrived in Shanghai, while inventories in LME warehouses of the metal used in construction and power cables rose 2,200 tonnes to 170,050, the highest level since Feb. 5.

"These builds in stocks are only adding to concerns that we are moving into a weaker market environment through the second half of the year," said Berry.

However, prices on Thursday were supported by the weaker dollar making commodities an attractive hedge and makes dollar-priced metals cheaper for holders of other currencies.

In a note  Fairfax analyst John Meyer said: "It is the relatively rapid and consistent strengthening of the dollar since 27th of July which has pushed gold, platinum and some other commodities lower.

"While some currency pressure may remain we see copper, nickel and aluminium prices rising on a recovery in Chinese demand."

Lead  gained for a second consecutive day, rising as much as 3.7 percent to $2,125 a tonne, its highest level since Aug. 7. Lead traded at $2,074 versus Wednesday's $2,050.

Prices for the metal, used in batteries, jumped more than 11 percent on Wednesday in a short-covering rally.

Aluminium  declined to $2,753 a tonne from $2,765 as rising oil prices put pressure on the energy-intensive metal and as inventories in LME warehouses rose 5,600 tonnes to 1.168 million, the highest level since April 2004.

While nickel  dropped to $20,400 from $21,000 on continuing concerns about demand from stainless steel producers, the biggest users of the metal.

Zinc , mainly used to galvanise steel, fell to $1,810 from $1,849 a tonne, while tin  dropped to $20,100 a tonne from $20,550.

Gold up 2 pct, platinum rises 3 pct on higher oil

Gold gained more than 2 percent Thursday, lifting platinum more than 3 percent as oil prices rose and the dollar had lost ground against the euro.
      
Both precious metals slightly eased after the dollar pared some of its losses against the euro after stronger-than-expected second quarter U.S. GDP data, which came out at 1330 GMT.
      
Gold  firmed as high as $843.30 but eased back to $840.20/841.10 an ounce by 1235 GMT, versus 826.05/827.45 an ounce late in New York on Wednesday.
      
Spot platinum  rose to $1,481 per ounce and was last at $1,472/1,482 an ounce from $1,434.00/1,454.00 late in New York.
       
Investor demand for coins and bars and expectations of increased jewellery buying going into the peak-demand autumn festive season in Asia are also supporting gold prices.
      
India's Titan Industries , which operates one of the country's largest jewellery chains, told Reuters on Thursday that it expects the recent revival in gold demand to continue if prices remain around current levels.
      
Silver  tracked gold higher to $13.72/13.77 an ounce from $13.49/13.55 an ounce late in New York on Wednesday.
     
Among other precious metals, palladium  climbed to $292.00/300.00 an ounce from $288.50/296.50 an ounce. 

JP Morgan said in a report on Wednesday it cut its 2008 platinum price forecast by 10 percent to $1,698 an ounce and its 2009 forecast by 10 percent to $1,488, in response to massive falls seen in platinum group metals prices in recent weeks.

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