US & World Daily Markets Financial Briefing 05-02-2009

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US Stocks Decline Modestly After Retails, Claims Data

U.S. stocks were under pressure Thursday morning following another round of bleak retail-sales figures and a further increase in claims for unemployment benefits.

The Dow Jones Industrial Average was lower by about 65 points at 7892 in early trading, weighed down by declines for all but five of its 30 components. The S&P 500 was down 0.8%, while the Nasdaq Composite Index shed 0.8, as it was pulled lower after Cisco Systems posted disappointing results Thursday. Cisco shares were off 0.5%.

Nervousness about the health of the consumer pushed the market lower on Wednesday, and that theme continued to reverberate on Thursday as retailers reported generally weak same-store sales, though some did manage to outpace expectations. Discounter Wal-Mart Stores has benefited as consumers seek out more bargains, and its sales rose 2.1% last month. Wal-Mart shares rose 2.7%.

Also weighing on stocks, the number of U.S. workers filing new claims for jobless benefits soared past the 600,000 mark last week, reaching its highest level since the 1982 recession. Many market players have been reluctant to make big bets on stocks this week ahead of what many expect to be a dismal report on January payrolls due from the government on Friday morning.

Some financial stocks were also under pressure again Thursday. State Street declined 2.4% after warning that operating earnings in 2009 may drop as much as 16%. Bank of America, which on Wednesday plummeted to its lowest level since Nov. 1, 1990, was down more than 9% Thursday. Washington is expected to unveil next week a plan to relieve banks of soured assets, and financial stocks have been very volatile in the interim.

Interest-rate decisions from central banks overseas were also an early focus for Wall Street. The Bank of England cut its primary interest rate by one half a percentage point to 1%, while the European Central Bank left rates unchanged. The euro was sinking against the dollar, while the pound rose to nearly a three-week high against the U.S. currency. In stocks, the FTSE 100 was down 1.4%, while the DJ Stoxx 50 was off 1.7%.

Asian markets ended mostly lower, with Japanese and South Korean shares influenced by Wall Street's overnight weakness and worries about corporate earnings. Tokyo's Nikkei 225 lost 1.1%.

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Euro Down V Dollar After US Data, ECB

The euro fell to session lows versus the dollar after the release of a U.S. jobless claims report and comments by the European Central Bank chief that heightened the market's sense of risk aversion.

The number of U.S. workers filing new claims for jobless benefits soared past the 600,000 mark last week, reaching its highest level since the 1982 recession in the latest sign that the labor market downturn is deepening, the Labor Department said.

The news sent traders into the safe haven dollar as U.S. stocks futures pointed down. Comments by ECB chief Jean Claude Trichet extended the common currency's slide. Trichet acknowledged that inflationary pressures are decreasing in the euro zone and said the bank expects very negative quarter-on-quarter gross domestic product for the recent fourth quarter.

The euro's fall, however, seems to have reached a bottom for now. Trichet added that inflation will pick up in the second half of 2009. He also said that short-term market volatility is not relevant for ECB policy.

The euro fell as low as $1.2760 Thursday morning. Recently, the euro was at $1.2802 from $1.2852 late Wednesday, while the dollar was at Y89.80 from Y89.39, according to EBS. The euro was at Y114.86 from Y114.91. The U.K. pound was at $1.4540 from $1.4455, while the dollar was at CHF1.1645 from CHF1.1580 late Wednesday.

Thursday morning the ECB left its key rate unchanged at 2%, as widely expected. Traders have been selling the currencies of central banks not considered proactive in easing monetary policy in the midst of the financial crisis.

The euro also was struck overnight by the fourth consecutive dive in German manufacturing orders. December orders fell a seasonally adjusted 6.9% on the month, more than twice the 3% drop that analysts polled by Dow Jones Newswires expected.

Meanwhile, sterling earlier gained to nearly a three-week high of $1.4656 from the day's low of $1.4368 after the Bank of England cut its key interest rate to a fresh record low of 1% Thursday.

The pound's move is helping to keep its European counterpart, the euro, supported, say analysts. The BOE gave no indication that it would be the last rate reduction in the near term. With the bank rate getting closer to zero, the BOE is likely to have to rely more on unconventional measures to ease monetary conditions.

Elsewhere, Bank of Japan board member Atsushi Mizuno said Thursday that the BOJ must prepare to take "unusual" steps to revive the nation's economy as the economic outlook grows increasingly gloomy.

"It's not an exaggeration to say that a downswing in exports is triggering a downward spiral in production, income and spending, and the Japanese economy appears to be heading toward a hard landing," Mizuno told business leaders in Gifu, central Japan.

The remarks by Mizuno, a relative hawk on the BOJ board, show just how negative the central bank's picture of the economy has become.

Canada Morning
 
The Canadian dollar is marginally lower in light, choppy dealings early Thursday, with the currency expected to remain in the thrall of commodity price directions and the overall ebb and flow of risk aversion.

The dollar was trading at C$1.2347, from C$1.2322 late Wednesday.

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European Stocks Drop; Light Trading Ahead

LONDON - European stocks were lower in early business Thursday, with light trading preceding the key interest rate announcements expected later from the European Central Bank and the Bank of England.

At 0847 GMT, the Dow Jones Stoxx 600 index was down 1.2% at 192.4. London's FTSE 100 was down 0.9% at 4190.0, Frankfurt's DAX was down 1.4% at 4430.96 and Paris's CAC-40 was down 1.5% at 3021.59.

While the BOE is expected to cut Bank Rate to 1% from 1.5%, indications from the ECB suggest it will leave rates unchanged.

Ken Wattret, economist at BNP Paribas, said this would not be the right course of action. "We continue to believe the ECB is underestimating the scale of the current downturn and the potential consequences for price stability," he said.

Wattret added that an obvious criticism of the ECB holding pat at 2% would be that this would maintain the refinancing rate at the same level as the period from Jun. '03 to Dec. '05, when the economy was expanding almost continuously. "Now it is contracting at an alarming rate, with unemployment surging and the inflation rate falling precipitously," he said.

Until the announcements from the BOE at 1200 GMT and the ECB at 1245 GMT, trading is expected to remain tentative, with investors keeping their cards close to their chests.

In the foreign exchanges, the euro could underperform other G7 currencies, said Kenneth Broux, economist at Lloyds Banking Group, as the ECB prepares to keep interest rates on hold. "Fears the central bank may fall behind the curve by the next meeting in March due to a worsening economic backdrop could lead euro crosses to extend their decline, led by a fall in euro/dollar towards 1.28," he said.

The euro was quoted at $1.2842 at 0910 GMT, down from $1.2849 at the Wednesday New York close. The dollar was quoted at 89.78 yen, up from 89.44.

Meanwhile, in terms of individual stocks, the bank sector was again in focus, with Deutsche Bank dropping 4.4% to EUR20.2. Germany's largest bank by market capitalization confirmed an EUR4.8 billion net loss in the fourth-quarter. This, and concerns about Bank of America, weighed on bank shares across Europe.

"There's lingering uncertainty about the Obama administration's plans to address the damaging effect of troubled assets on the books of Bank of America and others," said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund.

In Europe, Credit Agricole fell 3.8% to EUR9.2 and Societe Generale declined 4.0% to EUR30.9. Swiss Re slumped 17% to CHF25.1 after announcing U.S. investor Warren Buffett's Berkshire Hathaway will invest around $2.6 billion, to help the Swiss firm boost capital and protect its crucial double-A credit rating after posting a big loss in 2008.

The situation was little better for Unilever PLC. Unilever was 5.6% lower at 1400 pence after it scrapped its sales and profit targets, citing the uncertain economic horizon.

Earlier, Asian share markets were mixed. Japan's Nikkei 225 declined 1.1% and Australia's S&P/ASX 200 fell 0.3% but Hong Kong's Hang Seng index was Asia's standout, rising 0.9% amid further steps by Beijing to shore up key sectors of the economy.

Despite the somber tone in the U.S., Asian shares found some solace in shipping shares, which jumped after the Baltic Dry Index gained 14.6% to 1316 Wednesday. The index has risen from around 680 in early December, helped in part by tentative signs of a recovery in Chinese demand for commodities.

European credit markets opened wider Thursday, after U.S. and some Asian stocks posted overnight losses.The Markit iTraxx Crossover index, which tracks the cost of protection against default on a basket of 50 mostly sub-investment grade credits, was quoted at 1048/1052 basis points, wider than Wednesday's closing level of 1038 basis points, according to Markit.

March Nymex crude oil was trading at $40.38 per barrel, little changed from $40.32 in late New York business Wednesday. Spot gold was at $910.15, up from $902.50. Bunds and gilts were both weaker in early trade.

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Asian Shares End Broadly Down, But Shipping Shrs Rise

Most Asian equity markets edged lower after a choppy session Thursday, with Japanese, South Korean and Indian shares influenced by overnight weakness on Wall Street and worries about corporate earnings.

Shanghai-listed stocks declined, taking a breather after a three-day rally, even as shares of Chinese banks rallied in Hong Kong on expectations that government policies may help support the mainland economy. Shipping shares surged across the region after a jump in a key index signaled improved dry bulk shipping rates.

"There was obviously opportunism about China growth, commodities and shipping. On the downside, we had weakness from Japanese corporate earnings and downgrades and from Macquarie on the banking side... But by the end of the day negative sentiment won the battle," said Andrew Sullivan, a sales trader at Main First Securities.

Japan's Nikkei 225 finished the day 1.1% lower, South Korea's Kospi lost 1.5%, Australia's S&P/ASX 200 gave up 0.3% and China's Shanghai Composite declined 0.5%, unable to latch on to their early gains.

India's Sensex lost 1.2%, Singapore's Straits Times slipped 0.2% and Taiwan's Taiex ended 0.6% lower.

Despite solid gains in the morning session, Hong Kong's Hang Seng Index ended up just 0.9%, while the Hang Seng China Enterprises index, which measures performance of Chinese large-capital stocks, finished up 3%.

"Even though the performance of overseas markets remains quite unstable, investors are expecting that the Chinese economy will recover faster," said Ben Kwong, chief operating officer at KGI in Hong Kong. "But I remain skeptical it's a sustainable trend."

"The fact is everybody is pinning their hopes on China and that means that there is putting all eggs in one basket," added Main First's Sullivan.

Banking stocks led the gains in Hong Kong, with Bank of China jumping 3.9% and Industrial & Commercial Bank of China gaining 3.9%.

"The banks are particularly strong today, given that some figures indicate that loan growth in China has been very strong in January," said Marco Mak, head of research at Tai Fook Securities in Hong Kong.

Overall trade was cautious after the Dow Jones Industrial Average Wednesday closed below 8000 for only the third time this year, amid concerns about fading U.S. consumer demand.

After-hours in the U.S., Cisco Systems fell 4.4% after it warned of an even sharper fall in revenue for the third quarter as the downturn took its toll on customer orders; that weighed on U.S. stock futures with Nasdaq futures down 2%.

Shipping shares showed some heft after the Baltic Dry Index gained 14.6% to 1316 on Wednesday, helped in part by tentative signs of a recovery in Chinese demand for commodities.

"Shipping shares will continue to gain as long as the Baltic index continues to recover," said Mitsuru Miyazaki, an analyst at SMBC Friend Research Center, noting that current BDI levels were still not profitable for shippers.

In Tokyo, Nippon Yusen ended up 5.3% and Mitsui O.S.K. Lines rose 5.1%. Taiwan's U-Ming Marine and Sincere Navigation rose by their daily permitted limit of 7%. Neptune Orient Lines surged 4.3% in Singapore.

Still, KGI's Kwong said it is doubtful that demand for commodities would pick up much, given the global economic wobbles. He said the rise in the BDI "was unlikely to sustain for long" and advised investors to sell into strength in shipping shares.

Daiwa Securities SMBC-Cathay's David Li in Taiwan said the BDI had been "partly boosted by increased demand for iron ore in China around the Lunar New Year, but this increase may not persist as the Chinese inventory of iron ore is still high. There are not fundamentals supporting the index's rise."

In Sydney, mining stocks were lending a hand with Rio Tinto climbing 7.1% and BHP Billiton adding 6.2%, helped by stronger metal prices and some recent resilience in manufacturing data out of China.

Financials were under pressure though, with National Australia Bank falling 4.2% and ANZ Banking Group down 7.1%. Suncorp-Metway was on a trading halt after it warned its interim profit could fall as much as 45% on the year and that it would slash dividends. The company also said its chief executive will resign.

Qantas Airways slumped 18.3% to A$1.87 after touching a 12-year low of A$1.84, as it completed a A$500 million institutional placement. "The Australian equity market is suffering from 'issuance indigestion'," said The Charlie Aitken Report.

Blue chips were lower in Tokyo with Canon down 3.2% and Honda Motor sliding 0.9%, though Panasonic added 0.6% despite issuing poor third-quarter earnings and forecasting a loss for the fiscal year ending in March, as some investors took comfort at its quick cost-cutting measures.

Shares of Elpida Memory jumped 4.6% after a person familiar with the matter told Dow Jones Newswires the Taiwan government was considering buying a stake in the company as a way to help consolidate Taiwan's memory-chip sector.

In Seoul, Hynix Semiconductor shares ended down 1.8% after the chip maker posted a fifth-straight quarterly net loss during the October-December period and said it was revising down its 2009 capital spending plan.

Malaysia's main index added 0.4%, Indonesian shares gained 0.6% and Philippine shares advanced 2.4%, while New Zealand's NZX-50 finished 0.2% up earlier in the day.

In currency markets, the dollar and the euro rose against the yen. The dollar recently traded at Y89.77, while the euro was up at $1.2871. Front-month Nymex crude oil was 2 cents higher on Globex at $40.34 a barrel.

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Gold Up Slightly Ahead Of Rate Decisions

LONDON -- Spot gold prices were trading slightly higher Thursday as traders awaited interest rate decisions and statements by the Bank of England and European Central Bank.

Overall, sentiment is bullish in the market, traders said, and that is being compounded by recent analyst price forecasts for gold to move back above $1,000 a troy ounce in 2009 and rising exchange traded fund gold holdings.

At 0957 GMT spot gold was trading at $909.80 /oz, up 0.5%. Spot silver was at $12.587/oz, up 0.5%. Spot platinum was 0.5% higher at $968.50/oz and spot palladium was at $196.50/oz, up 1.3%.

Precious metal investors are expected to trade cautiously Thursday ahead of the European Central Bank rate decision and statement, said Standard Bank analyst Manqoba Madinane.

Rates are widely expected to be left unchanged but a cut could cause the dollar to strengthen further against the euro, which could further constrain precious metals prices, Madinane said.

Holdings in the largest gold ETF -- SPDR -- rose 6.02 metric tons to 859.49 tons as of Feb 4.

Goldman Sachs raised its three-month gold price forecast to $1,000/oz, up from a previous forecast of $700/oz Thursday. On Wednesday UBS raised its 2009 average gold forecast to $1,000/oz, also up from $700/oz.

While investor demand for the metal continues to rise, jewelry demand is dropping in major consuming areas such as India and the Middle East.

For the moment gold is moving in line with the dollar, rather than its normal converse correlation, but this should be temporary, said HSBC analyst James Steel.

Risk aversion is leading investors to increase holdings of both gold and the dollar, Steel said.

"We do not believe this trend can continue indefinitely, however, as traditional monetary theory suggests that as a hard asset, gold is unlikely to move in sync with the USD over the longer term," Steel said.

Nymex Crude Sideways, Market Awaits Macro Leads

Crude oil futures drifted sideways Thursday in Asia, trading in a tight band for a seventh straight session, as traders sought further clues to the outlook for the global economy and its implications for energy consumption.

With little else other than overnight U.S. government oil data for market participants to dissect, macroeconomic indicators are likely to take center stage amid persistent concerns over demand. Meanwhile, Asian share markets were showing some resilience despite an overnight decline on Wall Street.

On the New York Mercantile Exchange, light sweet crude for delivery in March traded at $40.29 a barrel at 0645 GMT, down 3 cents in the Globex electronic session.

The front-month contract drifted in an uninspired 47-cent band. March Brent crude on London's ICE Futures exchange rose 15 cents to $44.30 a barrel.

Nymex crude lost ground Wednesday after the U.S. Energy Information Administration reported a jump in crude stockpiles in the last week of January, heightening concerns that a slowdown in demand will lead to a supply glut.

Commercially held crude inventories rose 7.2 million barrels in the week to Jan. 30 to 346.1 million barrels -- up 18.1% on year -- partly because high imports overshadowed an uptick in refinery throughput, the EIA said in its Weekly Petroleum Status Report.

"RBOB (futures) has been strong but I think cracks will come under pressure," Furumi said, noting the rebound in U.S. gasoline stockpiles.

Still, sentiment appeared to have found some support after Saudi Arabia's state-owned oil giant sharply raised its crude official selling prices for March, a move some refiners interpreted as a prelude to a cut in supply.

OSPs for March shipments to Asia, the U.S., Northwest Europe and the Mediterranean were all raised on-month, Saudi Arabian Oil Co., better known as Saudi Aramco, said in a statement.

The kingdom is the leading member of the Organization of Petroleum Exporting Countries, which late last year pledged to start holding back output to shore up oil prices.

OPEC, which pumps 40% of the world's crude, counts six Middle East producers among its 12 members, and only the United Arab Emirates has announced supply cuts for March so far. "Maybe it's a sign" of Saudi intentions, said an official at a major South Korean refinery. "The (price) increases are very big, I've not seen anything like this in a long time."

Oil product futures were mixed at 0645 GMT. Nymex heating oil futures for March chalked up 97 points to 133.67 cents a gallon, while March reformulated gasoline blendstock traded at 122.70 cents, 86 points higher. ICE gasoil for February was changed hands at $416 a metric ton, down $6.50 from Wednesday's settlement.

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