US & World Daily Markets Financial Briefing 02-02-2009

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US Stocks Open Lower After Spending Data

U.S. stocks open on a down note after data showing U.S. consumer spending fell in December for the sixth time in seven months while the personal savings rate rose to its highest level since May. The Dow Jones Industrial Average is off more 100 points.

Reported Earlier:

US Stock Futures Point To Broad Losses After Data Report

U.S. stock futures pointed to sharp losses for Wall Street as February trading kicked off Monday, with downbeat economic data and earnings continuing to keep investors on a knife's edge.

Futures pushed further south after the release of data showing the sixth drop in U.S. real consumer spending in 7 months. The personal savings rate rose to 3.6% in December, the highest since May.

S&P 500 futures (SPY) fell 14.60 points to 807.930, while Nasdaq 100 futures (QQQQ) fell 15.2 points to 1164 and Dow industrial futures (DIA) surrendered 108 points to 7847.

On Friday, U.S. markets tumbled to end the month much lower. The Dow fell 148 points, or 1.8%, to finish at 8,000, putting its cumulative losses at 8.8% for the month.

The S&P 500 fell 19 points, or 2.3%, to end at 825, and lost 8.6% in the month, the worst performance on record for the month of January. And the Nasdaq Composite lost 31 points, or 2%, to 1476, leaving the tech-heavy benchmark down 6.4% on the month.

Investor unease over the global economic slowdown and the effect that will have on corporate profits is not expected to dissipate anytime soon, say analysts. Investors are also hoping for more clarity from Congress and the White House on establishing a good bank/bad bank institution that would buy up the delinquent loans and illiquid securities corroding banks' books.

"Investors remain uncertain about the Obama administration's financial rescue plan, the feasibility of a "bad bank" and potential impact of the fiscal stimulus package," said Lena Komileva, head of G7 market economics at London-based inter-dealer broker Tullett Prebon PLC (TLPR.LN).

Tobias Levkovich, a strategist at Citigroup Inc. (C), said investors are waiting for a pickup in lending to buy stocks. But he said lending isn't usually a good leading indicator. "We doubt that there is any one piece of data that will provide the panacea that investors crave," he added.

Of stocks in focus, Ford Motor Co. (F) fell nearly 4% in pre-market trade. Reuters reported that Barclays Capital downgraded the No. 2 U.S. automaker, saying it will need government cash by year end.

Meanwhile, General Motors Corp. (GM) is struggling to avoid a $7 billion tax associated with a U.S. Treasury Department plan to give much of the troubled company's outstanding stock to debt holders, the United Auto Workers union and the federal government, according to a published report in The Wall Street Journal.

Ahead of the bell, toy giant Mattel Inc. (MAT) reported net income fell 46% to $176.4 million, or 49 cents a share, on sales of $1.94 billion from $2.19 billion. A survey of analysts by FactSet Research produced consensus estimates of 71 cents of profit on $2.19 billion of sales.

Pfizer Inc. (PFE) fell over 1% as it said Saturday it discontinued a Phase III clinical trial for an experimental pancreatic-cancer drug because it was not showing an improvement over a standard treatment. But the stock also was reportedly upgraded by Credit Suisse Group (CS).

More economic data is due later on Monday with the January manufacturing survey from the Institute for Supply Management and construction spending both due at 10 a.m. Eastern.

Financial issues were weaker across the globe on Monday.

In Europe, the pan-European Dow Jones Stoxx 600 index was down nearly 2%, with banks under pressure. London shares were also weaker as the biggest snowstorm in 18 years crippled public transportation and shut down airports.

Overnight in Asia, Hong Kong shares were hit especially hard, tumbling 3% and dragged down by financials after downgrades for earnings of major Chinese banks. Bank of China fell 3.9%.

In commodities, crude-oil futures were down 75 cents per barrel, while gold was down $15.60 an ounce.  In foreign exchange, the Japanese yen was broadly higher, lifted by increased worries over the depth of the global downturn, analysts said. Safe-haven flows also lifted the dollar versus most counterparts, with the exception of the Japanese currency.

The dollar lately changed hands against the euro around $1.27, and against the yen at 89.06. The pound was sharply weaker against the euro, falling to 89.65 pence.

US HOT STOCKS

Among the companies expected to actively trade in Monday's session are Rockwell Automation Inc. (ROK) and Humana Inc. (HUM).

Rockwell Automation shares fell 12% to $22.99 in premarket trading after reporting a 24% decline in fiscal first-quarter net income as margins and sales dropped amid the stronger dollar. The maker of industrial-automation products also slashed its outlook for the year.

Humana reported a 28% decrease in fourth-quarter net income despite increases in revenue and membership as the managed-care company posted higher prescription drug plan expenses and a write-down on an investment losses. Shares fell 3.8% to $36.50 in premarket trading.

Odyssey Marine Exploration Inc. (OMEX) shares jumped 33% to $5.24 after the company said it has discovered the shipwreck of HMS Victory lost in 1744, according to an SEC filing. Odyssey Marine said research indicates that Balchin's Victory sank with a substantial amount of gold and silver specie aboard. Terms of collaboration between Odyssey and the U.K. Ministry of Defence on the project are currently being negotiated, the SEC filing said.

Allied Irish Banks PLC (AIB) and Bank of Ireland PLC (IRE) rose 19% to $3.27 and 10% to $3.30 in premarket trading, respectively, after a Department of Finance spokesman said Monday that the Irish government's bank recapitalization of the two banks, valued at between EUR7 billion and EUR8 billion collectively, will be announced Tuesday or Wednesday.

Standard & Poor's Ratings Services said Altria Group Inc.'s (MO) decision to suspend its $4 billion share repurchase program would allow the tobacco company to preserve its capital position and strengthen its liquidity. Shares rose 1.4% to $16.77 in late trading.

Standard & Poor's Ratings Services warned it may cut credit ratings on newspaper publisher Gannett Co. (GCI) to junk status, saying "revenue and EBITDA declines may not moderate sufficiently over the intermediate term for Gannett to maintain an investment grade rating." Gannett's rating is BBB-, just one notch above junk. Shares fell 3% to $5.60 in after-hours trading.

Closeout retailer Tuesday Morning Corp. (TUES) said it reached a new agreement with one of its lenders for an additional $30 million, bringing the total amount of the facility to $180 million. Shares were unchanged at $1.18 after hours.

Watch List:

ADC Telecommunications Inc. (ADCT) lowered its fiscal first-quarter outlook as demand declined and said it plans to further reduce its work force and implement a hiring freeze. The provider of broadband infrastructure products, which has struggled with high commodity prices, also projected a "significant" goodwill write-down.

BB&T Corp. (BBT) said that despite its results for the year and capital position, the bank is not giving its executives bonuses for 2008. The general public loathes to hear companies handed out money despite needing billions in taxpayer aid, though BB&T did not say public sentiment played a role in its decision.

Center Bancorp Inc. (CNBC) more than tripled its fourth-quarter net income to $1.7 million, or 13 cents a share, from $532,000, or 4 cents a share, from a year earlier. The New Jersey-based regional bank recorded double-digit growth in loans and kept non-performing assets to a slim 0.46% of loans.

Manpower Inc. (MAN) said it plans to appeal a fine of about EUR42 million, or $53.8 million, imposed by the Competition Council in France that said the staffing company's French operating unit, along with other companies, engaged in anti-competitive conduct between March 2003 and November 2004.

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Euro Hit As Euro-Zone Concerns Grow

Concern about European banks and the euro-zone economy hit the euro Monday in Europe and left the dollar and the yen benefiting as safe haven currencies.

As risk aversion rose and equity markets slumped once again, the market has started to focus on the European Central Bank policy meeting Thursday and the likelihood that the ECB will leave rates unchanged despite deteriorating conditions.

Analysts warned that as currency markets are no longer concentrating on yield differentials, the euro could come under more selling pressure if the ECB doesn't cut rates.

Negative sentiment toward the single currency became more pronounced after Moody's downgraded the long-term credit rating of Barclays Bank (BCS). A report that there are fears of a default in currency swap lines among European banks only depressed the euro further.

The investor move into safe havens was also encouraged by last Friday's decline in the Chicago purchasing managers' index and the University of Michigan's latest consumer confidence index, which offset any optimism created by the news that U.S. gross domestic product had shrunk only 3.8% in the fourth quarter of last year rather than the 5.5% that had been expected.

There are also concerns that plans for a so-called "bad bank" to take over the toxic assets from U.S. financial institutions and the stimulus package put together by President Barack Obama may take longer than expected to make it through Congress.

News that the euro-zone purchasing managers' index rose to 34.4 in January from 33.9 failed to give the euro much of a lift. The index came in slightly lower than the 34.5 flash estimate reported previously.

Instead, risk aversion is expected to be encouraged further later in the day with the release of the latest Institute of Supply Management survey in the U.S. The consensus forecast is for the index to have fallen to 32.0 from 32.9.

Trading patterns are also likely to have been affected by the worst snowstorms in London in nearly 20 years, which have brought the city to a standstill and is likely to have reduced business in currency markets.

By 1030 GMT, the dollar had fallen to Y88.92 from Y89.92 late Friday in New York, according to EBS. The euro fell to $1.2742 from $1.2802 and the Y113.31 from Y115.07.

The dollar made it up to CHF1.1648 from CHF1.1617, while the pound sunk to $1.4221 from $1.4514 on renewed concerns about the U.K. economy.

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European Shares Fall As Bank Stocks Slide

European shares declined on Monday, with banks by far the worst performers in the first trading day of the new month. The pan-European Dow Jones Stoxx 600 index fell 2.6% to 186.35, with the banking sector down 7.6%.

The Stoxx 600 index lost roughly 4% in January with shares of many banks falling heavily as investors fretted about the prospect of full government nationalization.

"Nationalization is still a very real prospect. We're rapidly we exhausting various alternatives. It's definitely a concern," noted Mike Lenhoff, chief strategist at Brewin Dolphin.

"I suspect the market is worrying that the [U.S.] fiscal stimulus could get hung up which is going to delay any beneficial impact it may have on the economy which clearly washes back on the banks in terms of bad debts and further write downs in their assets," he added.

On Monday, shares of HSBC Holdings (HBC) fell 5.4%, shares of Barclays (BCS) dropped 11%, shares of Deutsche Bank fell 6.6%.

Barclays separately saw its debt rating downgraded by Moody's. BNP Paribas shares fell 10.7% in Paris, with the lender giving back gains made Friday.

At the end of last week, the lender agreed with the Belgian government and Fortis to a new deal to sell off parts of Fortis after a court ruling forced them to abandon an earlier agreement in the face of shareholder dissent.

Fortis shares resumed trading on Monday and climbed 11.2% in Brussels. On a national level, the German DAX 30 index declined 2.4% to 4,235.40 and the French CAC-40 index lost 2.7% to 2,893.10.

The U.K. FTSE 100 index fell 2% to 4,067.50. The biggest snow storm to hit southeast England in 18 years left much of London paralyzed Monday, with all buses ordered off roads, airport runways closed and major disruptions to Tube and rail services.

However, there were a few bright spots on Monday. Shares of Ryanair Holdings (RYAAY) rose 5.2%, The Irish airline said it swung to a fiscal third-quarter loss of 102 million euros but also said its fourth-quarter loss won't be as bad as initially expected, due to lower oil and other operating costs. For the year, excluding items, it may break even to earn as much as 80 million euros.

Shares of mineral extractor Rio Tinto (RTP) advanced 6.2%. It said it has held talks with Aluminum Corp. of China, or Chinalco, over the sale of minority stakes in some of its operations and an investment in convertible instruments.

In response to a number of media reports that the miner was in talks with the Chinese group, Rio released a statement confirming the talks but stating that there is no certainty of a deal.

The Melbourne-based miner plans to pay down $10 billion of its $38.9 billion debt and has said it is considering a range of options, including a possible equity issue.

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Asian Shares End Mostly Lower; Econ Concerns Persist

Most Asian markets were hammered Monday as investors concerned about a gloomy global economic outlook sold off export-related stocks and financials.

Hong Kong shares were hit especially hard, even as mainland Chinese and Taiwanese shares survived selling pressure to end higher as trading resumed for the first time since the Chinese New Year holidays.

"Negative news is spreading across markets and global demand is slowing down," said Hirokazu Yuihama, head of regional strategy at Daiwa Institute of Research in Shanghai. "When we look at the region, the domestic Chinese market is the only bright spot now because of the huge infrastructure projects and government spending."

In Tokyo, the Nikkei 225 Average ended 1.5% lower at 7,873.98. Shares of some of Japan's biggest industrial companies fell to multiyear lows, with skittish investors dumping them on concerns more bad news could lie ahead as firms forecast steep losses and unveiled sweeping layoffs.

Shares of Hitachi, for instance, plunged 17% after the company last week forecast a $7.8 billion loss for the year ending March 31 - it would mark a record loss for a Japanese company - and said it plans to slash 7,000 jobs.

Australia's S&P/ASX 200 Index shrank 1.2% to 3,497.40 after the government said the budget was headed for a deficit, even though shares of Rio Tinto jumped 5.5%. The stock rallied after the mining giant said it has held talks with Chinalco over a large investment, helping ease investor concern that it could be forced to carry out a large rights issue to pay down debt.

Tony Russell, a senior equities adviser at ABN Amro Morgans in Brisbane, said investors were nervous ahead of a decision on interest rates by the Reserve Bank of Australia Tuesday, when the central bank was widely expected to cut rates by a full percentage point.

In Hong Kong, the Hang Seng Index finished down 3.1% at 12,861.49, dragged down by financials after Citigroup and DBS Vickers downgraded earnings of the major Chinese banks.

Bank of Communications stock lost 4.4% and Bank of China lost 3.9%. Market heavyweight HSBC Holdings also slid 3.8% on persistent worries about its funding.

China's Shanghai Composite rose 1.1% and Taiwan's Taiex gained 0.3%, withstanding selling pressure as investors hoping for a better year ahead prevailed. South Korea's Kospi lost 1.3% to 1,146.95 and New Zealand's NZX 50 slipped 0.1% to 2,771.50.

In afternoon trading, India's Sensitive Index tumbled 3.5% to 9,095.92 and Singapore's Straits Times Index fell 2.2% to 1,708.63.

In Japan, NEC Corp. fell after it Friday reversed an earlier forecast that it would turn a profit and projected a $3.2 billion full-year loss. Its shares, which fell to their lowest level in 30 years during the session, ended 5.7% lower.

In Mumbai, shares of Tata Motors lost 5.5% in afternoon trading after the commercial and passenger vehicles maker reported a loss last week.

South Korean shipbuilders ended higher on expectations of solid fourth quarter results, and were also helped by another gain for the Baltic Dry Index. Daewoo Shipbuilding & Marine Engineering Co. rose 3.6% and STX Shipbuilding Co. gained 0.7%.

"Despite all the negative factors, foreigners have been buying local stocks for four straight days," said Kim Joong-hyun at Goodmorning Shinhan Securities in Seoul. But he expressed skepticism that foreign investors' appetite could be sustained.

"I don't think these offshore investors are mutual funds who care about mid- and long-term value of stocks. They seem to be short-term players, such as hedge funds," he said.

Malaysian markets were closed for a holiday. Shanghai-listed shares were also helped by gains in agricultural firms, after the Chinese government announced measures to prevent a fall in grain production via tax cuts on agribusiness-related loans.

Indonesia shares were down 2.3% hurt by a weak rupiah. Philippine shares were up 0.5% while Thai shares lost 1.8%%.

The U.S. dollar and euro were falling against the Japanese yen in light trade as players looked for cues in Asian share price movements as well as U.S. data, such as a manufacturing index due later today, said Tokyo Forex and Uedea Harlow senior dealer Masanobu Ishikawa. He said the euro was likely to weaken as speculation of an interest-rate cut by the European Central Bank was likely to grow ahead of its meeting Thursday.

The euro had fallen to $1.2751 compared with $1.2802 late Friday in New York, while the dollar had slipped to 89.33 yen from 89.92 yen. The euro was also down against the yen, at 113.90 yen from 115.07 yen.

March Nymex crude-oil futures were down 42 cents at $41.26 a barrel on the Globex electronic platform.

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Spot Gold Lower, To Remain In Range

LONDON - Spot gold traded lower Monday weighed by physical selling out of Asia, and market participants said the metal is expected to remain in a range ahead of European rate announcements this week.

Spot gold will remain between $900 a troy ounce and $930/oz in the next few days ahead of the Bank of England and European Central Bank rate announcements Thursday, said Afshin Nabavi, head of trading at MKS Finance SA.

At 1026 GMT spot gold was trading at $913.50/oz, down 1.4% from Friday's close. Spot silver was at $12.415/oz, down 1.8%. Spot platinum was at $972/oz, down 1.6%. Spot palladium was at $192/oz, up 0.5%.

"Selling emanated from Chinese traders, returning from their one-week break," said UBS analyst John Reade. "We suspect they saw EUR/USD lower, gold much higher and sold short-term gold positions they owned. We expect safe haven buying to support gold and hold our one-month forecast at $900/oz."

In the wider markets, the dollar was stronger against the euro, crude oil was down and European equities down.

Exchange traded funds, or ETF, gold inflows continue to rise and the size of the position, combined with the speed of the inflows, suggest ETF investors are "probably as important as Comex futures speculators in driving the price," UBS' Reade said.

The largest ETF -- SPDR -- is currently a record high of 843.69 tons as of Jan. 30.

"Gold has clearly been the beneficiary of heightened investor anxiety," said HSBC analyst James Steel. "The surge in investor demand -- principally though not exclusively via the ETFs -- has proved more than sufficient, so far, to offset the drop in jewelry and other physical demand."

Gold prices are likely to head higher, Steel said, if investors continue to buy, especially through the ETFs. However, deflationary trends and a strong U.S. dollar may present some headwinds to further gold advances, Steel said.

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