US & World Daily Markets Financial Briefing 29-05-2008

Stocks fluctuate after GDP, jobless claims data

NEW YORK - Stocks fluctuated in a narrow range Thursday as investors digested the government's estimate of first-quarter economic growth and an uptick in last week's unemployment claims. Investors also eyed oil prices, which declined.

The Commerce Department revised its reading of first-quarter gross domestic product to an annual rate of 0.9 percent -- above the department's previous estimate of 0.6 percent, and above fourth-quarter growth of 0.6 percent. Though the data suggest the economy may avoid a technical recession -- defined by two straight quarters of decreasing GDP -- the upward revision was not as big as many investors had hoped.

The Labor Department, meanwhile, said initial jobless claims rose by 4,000 to 372,000. The rise was a bit milder than expected, but continuing unemployment claims remained above 3 million for the fifth consecutive week, a poor sign for the job market.

In midmorning trading, the Dow Jones industrial average rose 18.48, or 0.15 percent, to 12,612.51. Broader stock indicators were mixed. The Standard & Poor's 500 index slipped 1.08, or 0.08 percent, to 1,389.76, and the Nasdaq composite index advanced 4.28, or 0.17 percent, to 2,490.98.

The price of government debt declined. The 10-year Treasury note's yield, which moves opposite its price, rose to 4.08 percent from 4.03 percent late Wednesday.

The Federal Deposit Insurance Corp. reported Thursday that the number of financial institutions on its "problem list" rose to 90 in the first quarter from 76 in the prior period. The FDIC, which provides insurance for deposits, provides the list of institutions with weak financial conditions.

Wall Street's modest moves early Thursday come ahead of a speech from Federal Reserve Chairman Ben Bernanke in Basel, Switzerland, on transferring risk and financial stability. The speech is scheduled for 2:30 p.m. EDT.

And traders kept watch over crude oil, which along with gasoline prices poses a threat to consumer spending, and in turn, the overall economy. Light, sweet crude fell $1.93 to $129.10 per barrel on the New York Mercantile Exchange.

In corporate news, Costco Wholesale Corp. rose 56 cents to $73.80 after reporting that its fiscal third-quarter profit rose 32 percent, above analyst expectations, as customers flocked to its warehouse clubs to find bargains on food and toiletries.

However, retailer Sears Holdings Corp. fell $1.71 to $87.65 after posting a $56 million first-quarter loss that was worse than Wall Street forecast. The company said customers allocated more of their budgets to gasoline and food.

Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange, where volume came to 216.3 million shares.

The Russell 2000 index of smaller companies rose 3.04, or 0.41 percent, to 741.50.

Overseas, Japan's Nikkei stock average closed up 3.03 percent. In afternoon trading, Britain's FTSE 100 fell 0.43 percent, Germany's DAX index declined 0.23 percent, and France's CAC-40 fell 0.12 percent.

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Dollar edges higher as U.S. rate cut hopes recede further

LONDON  - The dollar edged higher as U.S. first quarter GDP growth was revised up, weighing further against hopes of more interest rate cuts in the world's biggest economy. Data out today revealed that the U.S. economy grew faster than earlier thought in the first quarter, providing fresh evidence the country may avoid a recession.
   
The Commerce Department said a smaller trade deficit and more business construction boosted growth. The U.S. economy grew at a 0.9 percent annualized pace in the first quarter, revised up from the previous 0.6 percent estimate.   

"As U.S. rate futures now pricing a zero percent chance of a cut from the Fed in June, further weakness (in the euro dollar rate) remains likely," said Matthew Foster-Smith at IFR Markets.
   
Ashraf Laidi at CMC Markets pointed out that the euro has lost a full cent from yesterday's $1.5650.  "The next key support stands at $1.55, which will largely depend on next week's release of US payrolls as these will be considered instrumental in determining Fed funds expectations for the August and September meetings," he added.
  
So far, hawkish rhetoric has also been helping lift the dollar. Overnight, Dallas Fed President Richard Fisher said that inflation is a key to the economy and that it would be "unacceptable" for the Fed to be viewed as accepting of high inflation.
   
"This marks a turnaround from the Fed's position during the initial stages of the credit crisis, when significant amounts of liquidity were provided to help prevent a deflation-induced slowdown," UBS analysts said.    

In Europe, the euro got only a brief lift today after money supply data showed a worrying re-acceleration. The data will add to the European Central Bank's concerns about inflation pressures, which are already making an early interest rate cut increasingly unlikely.
   
Euro area M3 growth accelerated to 10.6 percent year-on-year in April from 10.1 percent in March. "The ECB will be far from pleased to see that M3 money supply growth spiked back up to 10.6 percent in April, after moderating to 10.1 percent in March," said Howard Archer of Global Insight.   
   
Laidi at CMC Markets believes hawkishness from ECB officials will continue to underpin the euro at around $1.55 figure into the next week.
   
Elsewhere, the pound was up in a volatile day of trading. It started the day under pressure after the latest evidence showing that the UK's housing market is starting to falter but came back later after a stronger than expected UK retail sector survey.

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Euroshares open higher after Wall Street, Asian gains; Infineon slumps

At 9.01 a.m. The DJ STOXX was up 15.78 points, or 0.5 percent, at 3,185.47 and the DJ STOXX 600 was up 1.34 points, or 0.42 percent, at 321.49.

Infineon slumped 8.88 percent after the German chipmaker said it expects third-quarter revenues at its communications unit to be about flat from the previous quarter and expects EBIT to suffer accordingly.

Volkswagen fell 1.39 percent as Deutsche Bank cut its recommendation on the shares to 'sell' from 'hold'. Saint-Gobain was at the top of the fallers board, down 1.84 percent, after Merrill Lynch downgraded the shares to 'neutral' from 'buy', saying it believes the weakening operating environment will likley lead to increasing pressure on pricing.

SSE slipped back 0.69 percent after the U.K. utility reported a well received set of full-year results. The shares have risen more than 100 pence since mid April.

However, it was not all doom and gloom, with RWE and Iberdrola up 2.05 percent and 0.98 percent respectively as the pair were both upgraded to 'buy' from 'neutral' at UBS.

Alcatel-Lucent added 0.84 percent after Goldman Sachs upgraded the telecoms group to 'neutral' from 'sell', saying the recovery in U.S. corporate bond yields removes the estimated 1 billion euros of long-term pension liability from its fair value calculation.

Oils also got a boost as the price of crude rallied overnight and stayed above $130 per barrel in Asian trade amid growing jitters about falling U.S. gasoline consumption due to skyrocketing pump prices. Total added 1.39 percent, Repsol added 1.25 percent and Royal Dutch Shell added 1.09 percent.

BG Group, which is expected to sweeten its bid for Australia's Origin Energy Ltd with a cash offer of at least A$13.2 billion, rose 0.93 percent.

Shares in the world's largest hedge fund manager, Man Group, gained 2.8 percent after the group reported a higher than expected rise in full-year profits, prompting Credit Suisse to lift its target to 670 pence from 640 pence.

The broker repeated its 'outperform' stance and said it is raising its net inflows forecasts for 2009 and 2010. It said the price target hike was driven by this increase and by the better than expected cost in Thursday's numbers.

On the economic front, Euro zone M3 money supply growth is forecast to stabilise at 10.3 percent year-on-year in April after falling sharply in March, but M3 growth is now on a moderating trend after peaking at 12.3 percent last October.

Bank lending remains strong, particularly to companies, but overall private sector loan growth is expected to ease slightly to 10.6 percent from 10.8 percent. The European Commission's euro zone economic sentiment indicator is projected to ease to 96.6 in May from 97.1 in April, amid increasing signs of an economic slowdown.

However, there is a risk the indicator could stage a small rebound after falling for 11 months in a row and after the German Ifo index surprised on the upside in May. In the United States, first-quarter GDP is expected to be upwardly revised to 1.0 percent from 0.6 percent, with most of the revision taking place in the trade sector, economists said.

The Core PCE Price Index, the U.S. Federal Reserve's preferred measure of inflation, is expected to have remained at 2.2 percent in the first quarter, the same annual rate as in the previous quarter.

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Asian stocks track Wall St advance after U.S. data calms recession fears

In Australia, the S&P/ASX 200 gained 1.1 percent to settle at 5,709.4, while the All Ordinaries rose 1.1 percent to 5,817.2 as investors snapped up leading energy stocks like Santos.

Santos, Australia's second-largest oil and gas group, said on Thursday that Malaysian energy giant Petronas Gas Bhd has agreed to take a 40 percent stake in its proposed liquefied natural gas (LNG) project by investing $2.5 billion.

Santos shot up 11.1 percent to close at a record A$21.06. BHP Billiton climbed 2 percent to A$46.02, while Rio Tinto added 1.7 percent to $144.37. Weaker currencies

In Tokyo, the Nikkei 225 was 3 percent higher at 14,124.47 at the close, while the Topix was up 2.4 percent at 1,380.63, with a weaker yen boosting interest in exporters.

Consumer electronics giant Sony rallied 3.7 percent to 5,080 yen, office equipment manufacturer Canon jumped 3.9 percent to 5,540 yen and semiconductor equipment maker Tokyo Electron surged 4.1 percent to 7,120 yen.

South Korean shares also closed sharply higher, with the KOSPI index jumping 2 percent to its best level in a week, as exporters rebounded on expectations they will post robust earnings for the second quarter due to a weaker won and strong sales. The Kospi ended 35.58 points higher at 1,841.22 with technology issues rebounding from the prior session's selloff.

Samsung Electronics soared 5.5 percent to 730,000 won following a series of analyst upgrades. Nomura International raised its rating on the stock to 'buy' from 'neutral,' citing a better earnings outlook due to improvement in the memory chip industry.

In Hong Kong, the Hang Seng index closed with a 0.6 percent gain at 24,383.99, while the Shanghai Composite index lost 1.7 percent to 3,401.44.

Hong Kong's fixed-line carrier PCCW Ltd was in focus after the company announced it is reorganising its telecom and media business under a new holding company, HKT Group Holdings Ltd. in which a 45 percent stake may be offered for sale.

The local carrier is in the process of inviting investors to bid for the stake. Local banks were also among gainers amid talk of a stake sale in the sector. Wing Hang Bank advanced on reports that China Life Insurance Co Ltd. may acquire a stake in one of Hong Kong's smallest family-run banks.

Wing Hang jumped 4.5 percent to HK$116 after rising 5.1 percent on Wednesday. The company issued a statement denying it is in talks with a third party over the sale of a stake. Other banks extended gains on hopes they could be potential acquisition targets of bigger financial companies. DahSing Banking jumped 4.1 percent to HK$16.24 and Chong Hing Bank advanced 4.1 percent to HK$20.70.

In Singapore, shares were higher as investors also cheered better-than-expected data on U.S. durable goods orders for April. The STI closed up 28 points or 0.9 percent at 3,160.78.

The weighted index closed up 19.19 points or 0.22 pct at 8,684.92, after moving in the range of 8,794.02 and 8,675.71. The Jakarta index closed up 13.19 points or 0.5 percent at 2,446.95.

Bucking the regional trend, the Philippine market faltered, sending the main index to its weakest finish in nearly three weeks after data showed economic growth slackened in the first quarter, coming in at the low end of the government's forecast and worse than what many economists had expected. Manila's composite index lost 1.1 percent to finish at 2,802.22.

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Metals - Gold stays lower as dollar firms, oil weakens; platinum slides 4 pct

LONDON  - Gold remained lower midday as the stronger dollar dented its appeal as an alternative investment and oil prices eased, with the yellow metal's fall helping drag platinum prices down by some 4 percent.

Oil slipped further this morning ahead of U.S. stockpiles data due for release on Thursday afternoon, which is expected to show another rise in crude stocks. Gold tends to trend in an inverse relationship with crude, as it is typically bought as a hedge against oil-led inflation.

"We note that gold's sensitivity to oil price movements has intensified again," said Standard Bank analyst Manqoba Madinane in a note.

At 1:20 p.m, spot gold was trading at $892.05 per ounce against $900.40 in late New York trade on Wednesday.

Platinum meanwhile slipped sharply as the decline in the gold price encouraged profit taking after the white metal's sharp gains of recent months. The metal hit an intraday low of $1,978 an ounce, its weakest level since early May, before clawing back some losses to trade at $1,991 against $2,065.

Platinum prices soared to new highs earlier this year after South African power utility Eskom announced it would be forced to limit electricity supply to major industrial users such as miners.

The republic is the world's largest producer of platinum, supplying some 80 percent of global consumption.

Platinum is likely to remain underpinned by these supply disruptions despite short-term profit taking, analysts said.

"Gold price movements pulling platinum but strong fundamentals remain unchanged and risk of further power shortages in South Africa in coming months could spur new highs," said Fairfax analyst John Meyer.

Looking forward, the market will be closely eyeing U.S. economic data due for release later on Thursday, especially first-quarter GDP numbers, for clues as to the future direction of the dollar.

Gold has slipped from the highs it enjoyed earlier this year as the currency has regained some ground against the euro in recent weeks.

Among other precious metals, palladium dipped to $426 per ounce from $434, while silver eased to $17.10 per ounce against $17.39 in late New York trade on Wednesday.

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