US shares set to end winning streak

Wall Street stocks were set for a lower start on Wednesday that could see markets snap a three day winning streak after new data reinforced impressions that the US economy is slowing rapidly.

Durable goods orders in February fell 1.7 per cent, and by 2.6 per cent when volatile orders for transport equipment are stripped out, according to the Commerce Department.

That follows a 4.7 per cent decline in January and suggests that businesses are significantly cutting back on equipment purchases as fears of a recession increase.

Observers had been broadly expecting a bounce of about 0.8 per cent given the exceptionally large decline during the previous month.

Analysts at Lehman Brothers said before the report was released that tighter credit conditions and increased anxiety about the outlook for growth in the US were likely to cause a further deterioration in the demand for capital goods.

"Moreover, the contraction in payroll employment suggests firms are now actively changing their spending plans," Lehman analysts said. "We expect investment capital equipment to decline further in the months ahead, subtracting 0.1-0.2 percentage points from GDP growth per quarter in the second half of this year."

The series will be closely analysed, especially after Tuesday's batch of economic indicators highlighted plummeting consumer confidence and further pain in the stricken housing sector.

Data on new housing sales, due at 10am, may also make for dismal reading as analysts expect new home sales to fall by just over 2 per cent, to 575,000, in February.

"The mortgage market has continued to tighten… [and] fears of recession and uncertainty about future financial flows could keep potential buyers on the sidelines," analysts at Lehman said.

Less than an hour before the opening bell, S&P 500 futures were down 3.4 points at 1,348 while Nasdaq futures were down 4.8 points at 1,821.2.

Futures for the Dow Jones Industrial Average were down 38 points at 12,477.

"Expectations are for a softer start to Wednesday's session on Wall Street with ongoing concerns in the financial sector still broadly weighing on sentiment," said Claire Collingwood, a dealer at CMC Markets.

The banking sector is likely to be in sharp focus again after Germany's Deutsche Bank warned that disruptions to revenues and writedowns relating to the global credit crisis could threaten its annual profit targets.

On Tuesday a number of banking analysts cut their estimates for the sector, pushing financials into the red for the first time in three sessions.

That trend looks set to continue after Oppenheimer analyst Meredith Whitney slashed her estimates for the industry earnings in fiscal 2008 by 84 per cent on average and said further downgrades were likely.

"Despite cutting estimates for financials by over 30 times since November, we are confident this will not be our last reduction in 2008," Ms Whitney said.

"Rather as key mark-to-market indices trend lower, the housing market worsens, and the US consumer comes under increasing pressure, we anticipate further downside to both estimates and stock prices."

In particular, Ms Whitney cut her estimates for Citigroup by a massive 309 per cent to reflect write-downs of $1.3bn in the first quarter of 2008, on collateralized debt obligations, leveraged loans and other mortgage backed securities.

Citigroup shares were down 2.8 per cent at $ 22.77 in pre-market trade.

Significantly Oracle, the software company, reports later on Wednesday and its third quarter results could provide some direction for markets as it is widely seen as a bellwether of the technology sector and the American business environment.

Analysts are expecting the company to say that sales grew by about 22 per cent to $5.41bn, according to the average projection of 20 analysts surveyed by Bloomberg.

In pre-market trade Oracle shares rose 1.8 per cent to $21.45.

In other corporate news, the woes of Clear Channel continue to weigh on sentiment. The two private equity firms leading a $19bn buyout of the largest radio operator in the US are at odds with banks financing the deal, increasing speculation that the deal could collapse.

Clear Channel shares plunged 22.5 per cent to $25.25 in pre-market trading.

Ahead of the open on Wall Street European stocks were broadly down after talks between two major mining groups ended with a deal and a downbeat comment on the pharmaceutical sector from Morgan Stanley led to losses for drugmakers.

The FTSE Eurofirst 300 index was down 0.4 per cent at 1,261.4, after its 3.2 per cent rally during the previous session.

Asian equity markets were mixed on Wednesday, with much of the region depressed by some of the worst figures for US consumer confidence since the early 1970s. The Nikkei 225 closed 0.3 per cent lower at 12,706.63, while banking and insurance stocks lifted the Hang Seng 0.7 per cent to 22,617.01.

The dollar was down against major currencies early in New York. In overnight trade the euro rose 0.6 per cent to $1.5713 against the dollar. The dollar also fell 0.8 per cent to Y99.30 against the yen and dropped 0.7 per cent to SFr0.9995 against the Swiss franc.

Commodities also continued to rally. Gold was up $10 at $945 per troy ounce in early trade in New York, while US crude prices were $1.15 higher at $102.37 a barrel.

© The Financial Times Limited 2008. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation