US & World Daily Markets Financial Briefing 30-07-2008

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Stocks rise on employment data, Fed borrowing plan

NEW YORK - Stocks extended their rally to a second day Wednesday after an upbeat employment report from payroll company ADP made investors cautiously optimistic about the government's upcoming July employment report. Oil prices fell again, adding to Wall Street's upbeat mood, and the Dow Jones industrial average rose more than 100 points.

Automatic Data Processing said private sector employment rose by 9,000 during this month. After seeing jobs disappear by the thousands in recent months, the stock market is eager for any insights into the Labor Department's take on the job market on Friday.

The Federal Reserve announced it was extending its emergency borrowing program for Wall Street banks, which reassured the market that investment banks won't suffer from liquidity problems. The central bank will also now allow commercial banks to bid on cash loans that last for 84 days, besides the 28-day loans that are now available. The original program allowing investment firms to turn to the Fed for a quick source of cash will now run through Jan. 30, having been extended from mid-September.

The latest overtures from the federal government, some of which had been expected, nonetheless helped lift investor sentiment.

Meanwhile, the price of oil continued its slide, further easing concerns about the impact of inflation on consumer spending and the overall economy. Oil's sharp drop Tuesday contributed to Wall Street's huge rally; light, sweet crude fell 85 cents to $121.34 on the New York Mercantile Exchange. A weekly Energy Department report is due Wednesday that should offer insights into domestic demand for energy.

In the first hour of trading, the Dow rose 121.32, or 1.06 percent, to 11,518.88. On Tuesday, the Dow rose 266 points, more than wiping out a nearly 240-point loss from the previous session. Broader stock indicators also rose. The Standard & Poor's 500 index advanced 10.62, or 0.84 percent, to 1,273.82, and the Nasdaq composite index rose 9.72, or 0.42 percent, to 2,329.34.

Bond prices fell after the Fed announced its plans and as stocks advanced. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 4.12 percent from 4.04 percent late Tuesday. The dollar was higher against other major currencies, while gold prices fell sharply.

Investors are still seeing restrictions on a type of trade that can exacerbate a stock's decline. The Securities and Exchange Commission on Tuesday extended a temporary restriction on short-selling of the stocks of mortgage finance companies Fannie Mae, Freddie Mac and 17 big investment banks. The SEC said the ban on "naked" short selling will go through Aug. 12 and won't be extended.

Short sellers used borrowed shares and profit by correctly betting that they will fall. "Naked" short sellers, however, don't borrow shares before they sell them and try to cover their moves after they've placed their bets. The cap, put in place on July 15 after a sharp drop in shares of Fannie Mae and Freddie Mac, helped calm the markets and drive a short-lived but substantial run-up in shares of financial companies.

The government-chartered mortgage companies, which together hold or back nearly half of all U.S. mortgage debt, rose on news of the Fed's latest moves. Fannie Mae advanced $1.34, or 12 percent, to $12.94, while Freddie Mac rose 86 cents, or 10 percent, to $9.28.

Wall Street also received a mixed batch of quarterly reports from companies in a range of sectors. Comcast Corp. said Wednesday its second-quarter profit rose 8 percent as cable TV rates rose and consumers ordered more digital and premium services. The results fell short of Wall Street's forecast. The stock rose 71 cents, or 3.7 percent, to $19.67.

Northrop Grumman Corp. rose 8 cents to $67.62 after reporting that its second-quarter profit increased 8 percent on strong performance in the company's shipbuilding and aerospace segments. Corning Inc. said its second-quarter earnings jumped on a one-time tax gain and strong demand for glass used in flat-screen televisions and computers. But the company issued a third-quarter sales forecast that missed Wall Street's target. The stock fell 30 cents to $21.02.

Office Depot Inc. rose 20 cents, or 2.9 percent, to $7.10 after the company posted a loss of $2 million in the second quarter, citing weak demand in North America. The office-supply retailer's results excluding items topped analysts' forecast.

Overseas, Japan's Nikkei stock average rose 1.58 percent. In afternoon trading, Britain's FTSE 100 rose 1.59 percent, Germany's DAX index advanced 1.17 percent, and France's CAC-40 jumped 1.87 percent.

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Forex - Dollar jumps on surprise rise in U.S. ADP payrolls data

LONDON - The dollar jumped higher against all major currencies after a surprise rise in ADP's U.S. private payrolls data. The ADP National Employment Report showed a gain of 9,000 jobs in the private sector in July, confounding expectations of a loss of 50,000 to 60,000 jobs.

"The ADP report provides evidence that the deterioration in the US labor market may be easing as the economy responds favorably to fiscal and monetary stimulus," analysts at Bank of New York Mellon said.

The news helped the dollar to its highest in over a month against the euro. At 14.17 GMT, the dollar had strengthened to $1.5547 from $1.5586 prior to the data. The pound fell to $1.9776 from $1.9781. The dollar rose to 108.28 yen from 108.17.

The euro started the day on the back foot against the dollar as markets digested news that confidence in the single currency zone has slumped, further dampening the likelihood of an interest rate rise from the European Central Bank soon.

The European Commission's economic sentiment indicator for July slumped to its worst level in more than five years, dropping 5.3 points to 89.5 from 94.8 in June, the largest month-on-month decline since October 2001. The survey showed confidence declined across all sectors and most countries.

"It is likely that the European Central Bank will be forced to change its assessment on economic growth at next week's meeting," said Gareth Clase, an analyst at Royal Bank of Scotland. Clase said the window during which the ECB can raise rates further has narrowed even more, and "the likelihood of further rate hikes has fallen".

However, the chances that the ECB will be able to cut interest rates in the face of a possible sharp downturn in the euro zone are also very low, given the central bank's fears of aggravating inflationary pressures. With strong inflation figures from Germany released Tuesday, analysts believe the risk has increased that euro zone CPI inflation data will come in above expectations on Thursday, leaving little room for manoeuvre to cut interest rates.

"While growth risks have accelerated, the risk to price stability, which prompted the July rate hike, remain," said Stuart Bennett, senior forex strategist at Calyon. "Although the EONIA curve has priced out expectations for a further rate hike, stubbornly high inflation still leaves the door open for the ECB to up the refi rate gain by October," said Bennett.

Elsewhere, the pound briefly rebounded following the weak euro zone survey, before coming back under pressure on concerns about the outlook for the UK economy.

Tuesday's data from the Confederation of British Industry and the Bank of England revealed activity on the UK high street and housing market have deteriorated dramatically. The pound was trading at 0.7860 to the euro from 0.7870 earlier.

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Euroshares higher midday as Dow set for more gains; oil lower again 

At 11.56 a.m., the DJ STOXX 50 was up 31.74 points, or 1.12 percent, at 2871.84 and the DJ STOXX 600 was up 3.06 points, or 1.09 percent, at 282.7.

European shares gained, helped by strong company results, positive brokerage coverage and lower oil prices, said Kylie Higgins, Equity Analyst at Barclays Wealth. European banking stocks moved higher again, taking their lead from the United States where Merrill Lynch closed 8 percent higher, having opened 10 percent lower.

Societe Generale shares added 1.78 percent, Unicredit moved up 1.1 percent. Insurers Aegon and Axa were up 1.08 percent and 2.04 percent respectively, boosted by strong updates from Admiral, up 7.21 percent, and Aviva, up 6.27 percent.

Elsewhere, in the sector, shares in Deutsche Postbank were up 3.31 percent after Germany's largest retail bank released second-quarter figures, which showed slightly better than expected top-line figures and bottom-line figures that were in line with market consensus.

But UK bank Lloyds TSB shares tumbled 4.83 percent after it reported a 70 percent drop in its first-half pretax profit, after a 585 million pound writedown charge as a result of market turbulence.

Goldman Sachs said it was cutting its EPS estimates for 2008 to 2010 to reflect slightly weaker operating performance in insurance and investments and higher provisions. The broker reiterated its 'sell' recommendation and 330 pence target. Goldman pointed to the dividend cover remaining low.

There was good news from ArcelorMittal, up 8.18 percent. The steel group reported a much higher than expected 51 percent rise in second-quarter profit. Cheuvreux upgraded the shares to 'outperform' from 'underperform' and SG Secs put its 'sell' rating under review. Thyssenkrupp added 7.58 percent, also boosted by news Merrill Lynch upgraded the shares to 'buy' from 'neutral'.

Acerinox added 1.62 percent. Siemens added 5.26 percent after the German electronics conglomerate released solid third-quarter figures which showed strong sales and order numbers and much better-than-expected net profits.

"The figures were across the board better than expected, the reiteration of the 2008 outlook and statements regarding growth should help support the stock as well," said a Frankfurt-based trader. Rhodia surged 17.4 percent after the chemicals maker said its first-half net profit soared to 35 million euros from 3 million euros a year ago. Cheuvreux upgraded the shares to 'outperform' from 'underperform'.

Bad news for UCB and Elan highlighted the risks inherent in the healthcare sector as the Belgian group said on Tuesday the U.S. Food and Drug Administration (FDA) has not approved its lacosamide drug for the treatment of diabetic neuropathic pain in adults.

Deutsche Bank cut its rating on the shares to 'hold from 'buy', and shares slumped 10.24 percent. Elan shed 26.36 percent after disappointing results from its Alzheimer drug trial. Exane BNP Paribas to downgrade the stock to 'neutral' from 'outperform'.

There were also some disappointing earnings taking the edge off the rebound in global stock markets, with a number of companies saying figures had been affected by rising raw material prices and/ or the slowdown in the global economy.

Michelin, down 2.22 percent, posted lower-than-expected first-half earnings and warned that its full-year results will be impacted by an additional 750 million euros due to rising raw materials costs. The tyre manufacturer's operating income before non-recurring income and expenses fell 11.3 percent to 708 million euros, missing market expectations.

Finnish chemicals group Kemira, down 5.29 percent, reported a wider-than-expected fall in second-quarter profit and Next, the UK high street and catalogue fashion retailer, reported slightly better than expected numbers but issued a cautious outlook statement. Shares fell 1.99 percent.

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Asian stock market summary

JAPAN

The Nikkei 225 Stock Average closed up 1.6 percent at 13,367.79, after Wall Street rebounded sharply overnight, while a weaker yen boosted sentiment among investors. The broader Topix rose 1.7 percent to 1,302.99.

SOUTH KOREA

The KOSPI finished up 0.7 percent at 1,577.70, aided by a drop in oil prices, though off their intraday highs as gains were pared by sharp declines in shipbuilding stocks triggered by worries over higher steel prices.

AUSTRALIA

Australia's S&P/ASX 200 closed up 1.8 percent at 4,936.7, led by gains in banks and other recently battered stocks, as a drop in oil prices improved the outlook for economic growth and company profits.

CHINA

The benchmark Shanghai Composite Index closed down 0.48 percent at 2,836.67, erasing earlier gains, with coal stocks coming under pressure. Nonferrous metals stocks and property developers also dragged down the market, although airlines and oil refiners provided support following a retreat in crude prices.
   
The Shanghai A-share Index was down 0.48 percent at 2,975.74, while the Shenzhen A-share Index fell 0.38 percent to 894.40.
   
The Shanghai B-share Index fell 0.63 percent to 212.37, while the Shenzhen B-share Index lost 0.67 percent o 459.67.

TAIWAN

The weighted index closed up 0.80 percent at 7,070.35, following a strong rebound on Wall Street and a more than 2.5 usd drop in crude oil prices overnight.
  
Tourism and steel firms led a broad upswing early on, but profit-taking emerged toward the close to trim the gains.

PHILIPPINES

Manila's 30-company composite index rose 2.3 percent at 2,583.83, finishing at a six-week high, as investors cheered

HONG KONG

The Hang Seng index closed up 432.6 points or 1.94 pct at 22,690.6, off a low of 22,573.18 and high of 22,751.04.

INDIA

India's main stock index, the 30-share Sensex of the Bombay Stock Exchange, rose 495.67 points or 3.59 percent to close at 14,287.21 while the broader 50-share S&P CNX Nifty of the National Stock Exchange gained 123.70 points or 2.95 percent to end at 4,313.55.

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Metals - Copper lower as dollar remains strong amid weak demand period

LONDON - Copper fell further on Wednesday, having hit a seven-week low the day before, as the dollar remained strong amid seasonally weak demand for all metals.
   
Base metals tend to fall during the summer months as traders are on vacation. Copper yesterday was particularly vulnerable, therefore, as the dollar rallied against major currencies.
   
Such strength in the greenback wiped the appeal of raw materials priced in the dollar as they became more expensive for those trading in weaker currency.
 
Meanwhile, global copper stocks are rising as demand tails off. Inventory, as tracked by the LME daily, is now at its highest level since Feb.

"With the summer slowdown in full swing, with oil under pressure and the dollar upbeat, the base metals having to swim against the current, so further drifting may be seen, especially in the absence of bullish metal-specific news," Basemetals.Com analyst William Adams said.
   
"However, we do expect weaker prices to continue to find good scale down buying from the trade."
   
At 10.36 a.m., three-month copper on the LME fell to $7,880 a tonne from $7,931 at the close on Tuesday. Elsewhere on the LME, aluminium was lower at $2,947 a tonne from $2,960, nickel rose to $18,300 a tonne from $18,050, zinc was down at $1,855 a tonne from $1,880, tin eased to $22,325 a tonne from $22,370 and lead jumped to $2,190 a tonne from $2,270 at the close on Tuesday.

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