US & World Daily Markets Financial Briefing 06-01-2009

US STOCKS SNAPSHOT-Stocks erase gains; Exxon weighs on Dow

NEW YORK - U.S. stocks erased gains and the Dow turned negative on Tuesday as energy shares slipped on the falling price of crude oil and data on factory orders and pending home sales underscored the weak economy.
      
Dow component Exxon Mobil fell 1.1 percent to $80.70.
      
The Dow Jones industrial average slid 6.85 points, or 0.08 percent, at 8,946.04. The Standard & Poor's 500 Index  edged up 0.33 points, or 0.04 percent, at 927.78. The Nasdaq Composite Index rose 9.05 points, or 0.56 percent, at 1,637.08.

U.S. office vacancies rise as recession bites

BOSTON - U.S. office vacancies spiked higher in the fourth quarter and rents fell as the recession took a heavy toll on the commercial property market, according to data released on Tuesday.
      
Real estate research firm Reis Inc said there is no end in sight to the property downturn and forecast rising vacancy rates into 2010.
      
Rents fell 1.2 percent in the quarter, the sharpest drop since 2003, with the decline particularly pronounced in the New York metropolitan area, which has lost tens of thousands of jobs in the ailing financial sector.
      
The national vacancy rate rose to 14.4 percent, up 0.7 percentage point in the quarter and well above the 12.5 percent low hit in the third quarter of 2007.
      
Pittsburgh bucked the trend, recording a rise in rent as the western Pennsylvania city benefited from diversifying its economy away from manufacturing.
      
The value of U.S. office real estate investment trusts has fallen by about half over the past year, as measured by the Dow Jones U.S. industrial and office real estate investment trust index. Big office owners Vornado Realty Trust and Boston Properties Inc are among those feeling the pressure in their shares.

Sign up to receive your FREE 2009 Commodity Trading Guide from MF Global. A must have for any serious futures trader, this guide is a great resource for traders of all skill levels. Includes a market outlook for every major commodity, all-time high and low prices, over 350 charts and graphs, 10 years of historical supply and demand tables and government/industry report dates. Get your copy today! Click here

FOREX-Euro falls broadly as euro zone inflation slides

LONDON - The euro fell broadly on Tuesday, hitting a three-week low versus the dollar after a fall in euro zone inflation added fuel to views that the European Central Bank will continue cutting rates as price pressures ease.

Losses in the euro prompted broad dollar gains, with the U.S. currency climbing above 94 yen against the Japanese unit to its highest level since the start of December, while the dollar index hit its highest in three weeks.

The single currency fell to its weakest since mid-December to the dollar and sterling after inflation in the region came in at 1.6 percent on the year from 2.1 percent in November to its lowest level in more than two years.

The ECB targets inflation at just under 2 percent, and many in the market consider a fall below that level as keeping the door open to more aggressive rate cuts from the current 2.5 percent to deal with a deteriorating economy.

"(The data) will further free the ECB to cut interest rates at next week's meeting," said Adam Cole, global head of currency strategy at RBC in London. "The balance of news from Europe is so poor that the market is perceiving that the ECB is behind the curve (on rates)," which was driving recent weakness in the euro, he said.

The ECB is expected to cut its key lending rate by 50 basis points or more at its policy meeting next week. In the run-up to the gathering, ECB officials have been suggested that rates could come down more in the future.

At 1216 GMT, the euro had fallen roughly 2 percent to $1.3331 to its weakest since Dec. 12. Against sterling, the single currency fell roughly 1.5 percent to 91.00 pence according to Reuters data, its lowest since Dec. 17. The pair has tumbled dramatically after hitting a record high of 98.05 pence last week.

The dollar rallied across the board, climbing as high as 94.21 yen according to Reuters data, its highest since the start of December. Against a basket of currencies, the dollar rose as high as 83.871, its strongest in more than three weeks.

Tuesday's dismal data comes on the heels of an index of the euro zone private sector services economy which fell to its lowest in the survey's 10-year history and suggested that the region will be in a deep recession for at least much of 2009.

Growing evidence that the economy is suffering while inflation pressures ease has ripened conditions for lower rates even as the ECB slashed rates from 4.25 percent since October.

On Monday, ECB Governing Council member Vitor Constancio said monetary policy would respond with interest rate cuts to maintain inflation around 2 percent if necessary. "European monetary policy does not only worry that inflation rises a lot, but also if it falls a lot," he said in Lisbon.

That follows remarks by ECB Vice President Lucas Papademos, who said on Sunday that more rate cuts may be warranted to shield the euro zone from recession.

The ECB has cut interest rates to help the euro zone economy but the euro still enjoys a comparative advantage over peers such as the dollar and the yen, with euro zone rates at 2.5 percent versus close to zero in the United States and Japan.

But the euro's recent declines indicate that it will no longer be immune from the region's poor economic data. "Despite the weakening euro zone economy, the euro had a free ride for the last couple of months of 2008, piggybacking on the market's more negative view of other economies, in particular that of the United States and Britain," said strategists at Calyon in a note.

...Championship, a trading contest with over $30,000 in prizes! The contest will begin on December 7 at 17:15 EST and end on January 2 at 17:00 EST. Click here

Europe shares rise on rescue package hopes

FRANKFURT - European shares gained for the  sixth straight day on Tuesday, boosted by plans for fresh  government stimulus packages as autos bounced from Monday's  declines and energy shares rose as flows of Russian gas dropped.
   
At 1201 GMT, the FTSEurofirst 300 index of top  European shares was up 2 percent at 890.40 points after hitting  a session high of 891.31, the highest level in nearly two months.
  
The automobile sector recovered after declining sharply on Monday on the release of weak December sales data from sector leaders in Asia and Europe. The leading riser was Volkswagen, up 9.8 percent after Germany's Porsche raised its stake in the group to more than 50 percent.  Porsche was up 1.3 percent.
   
"At the moment, investors view the glass as being half full.  Positive sentiment prevails after a very bad 2008," said  Hans-Juergen Delp, investment strategist at Commerzbank in  Frankfurt.
   
"However, there is not much room for more gains" ahead of  the start of the full-year earnings season next week. Delp said sentiment was boosted by economic stimulus plans  in the U.S. and Germany, sparking hopes of a positive impact for  equities.
   
U.S. President-elect Obama has been working to secure  Republican support for a massive economic stimulus package, now  put at as much as $775 billion over two years, to be implemented  after he takes office on Jan. 20.
   
Senior German officials said the government's second fiscal  stimulus could reach 50 billion euros, nearly double the amount  expected just a week ago.
  
The euro fell broadly on strengthening market views that the  European Central Bank will shift to a more aggressive monetary  easing stance as euro zone inflation plunged more than expected  to a 26 month low in December.
   
Across Europe, the FTSE 100 index was up 1.4  percent, Germany's DAX was 1.5 percent higher and  France's CAC 40 gained 1.3 percent.
    
Energy stocks were up after Russian gas supplies were halted  via Ukraine to the Balkans, Turkey and south-eastern Europe and  flows to EU-member state Austria dropped by 90 percent in a  deepening price row between Moscow and Kiev.
  
BG Group, StatoilHydro and Total  were up between 0.8 and 3.3 percent. "The tensions surrounding Russian gas may support energy  stocks in today's market. It raises the questions about how  reliable Russia is as a supplier," said Joerg Rahn, senior  economist at MM Warburg.
   
"Investors seem to have (regained) a bit of confidence in  the market and are buying into defensive stocks such as  pharmaceuticals," he added.
   
The pharmaceutical sector added most points to the index,  with AstraZenenca, GlaxoSmithKline and Sanofi-Aventis up between 2.7-3.9 percent. In the mining sector, Rio Tinto and Xstrata  rose 6.1 percent and 8.2 percent respectively, as copper  rose 5.5 percent. Later in the session the investor focus will be on the U.S.  Institute for Supply Management's non-manufacturing index for  December and housing market data for November.

The U.S. Federal  Reserve will also release the minutes from its December meeting. "It is likely these sentiment indicators will be of  importance today. The markets has already been discounting a severe downturn. It is now looking for signs things are not  getting worse and starting to bottom out," said McAlinden.

Click here to perform accurate conversions on any major global currency.

Nikkei up 0.4 pct on yen, hopes for U.S. econ steps

TOKYO - The Nikkei average rose 0.4 percent to hit a two-month closing high on Tuesday, buoyed by exporters such as Canon Inc on a weaker yen and hopes for economic stimulus steps by the U.S. administration taking office later this month.

Toyota Motor Corp gained despite a more than 30 percent plunge in its U.S. auto sales for December. Hit by a sharp deterioration in global demand, the carmaker said it would halt production at all of its domestic plants for a total of 11 days in February and March.

Hopes for a U.S. stimulus bill, put at as much as $775 billion over two years and endorsed by President-elect Barack Obama, have helped lift Tokyo stocks after a panic-ridden 2008 in which the Nikkei marked its worst year ever with a 42 percent tumble.

The Nikkei had already gained 4 percent in December helped by those expectations, after it booked its worst monthly drop ever in October amid the financial crisis.

"Expectations for the Obama administration will probably reach their peak just before and after the inauguration," said Yoshinori Nagano, chief strategist at Daiwa Asset Management. "Investors' focus will likely be forced back to the real economy in late January as the U.S. earnings season starts and a likely string of bad results emerges."

The benchmark Nikkei gained 37.72 points in active trade to 9,080.84, the highest finish since Nov. 10, and building on a gain of more than 2 percent made in half-day trade on Monday. Tuesday was the first full day of Japan stock this year after the New Year's holiday.

The broader Topix inched up 0.03 percent to 876.20. While some analysts said risk appetite appeared to be on the rise, others were cautious, saying the market will be range-bound going forward. "Take today for instance, uncertainty over the performance of the U.S. market overnight weighed on the mind of investors," said Kazuhiro Takahashi, a general manager at Daiwa Securities SMBC.

With a tough year still ahead for exporters, one market focus this year will likely be on environment-related shares such as solar batteries as hopes are high that Obama will unveil environment-friendly policies, market participants said.

They also said those linked to infrastructure such as construction firms will likely gain popularity as governments worldwide come up with steps to stimulate their economies.

Among environment-related shares, GS Yuasa Corp, Asia's biggest car-battery maker, shot up 5.8 percent to 544 yen. Exporters climbed to push up the overall market after the yen fell to a more than three-week low against the dollar in U.S. trade. Investors welcome a softer yen as it boosts exporters' overseas profits when repatriated.

Canon, the world's largest digital camera maker, jumped 5 percent to 2,970 yen, the biggest positive contributor to the Nikkei 225, while Sony Corp shot up 7.6 percent to 2,120 yen.

Other high-tech shares also climbed on keen investor interest in buying the sector, which had been sold down sharply last year, with Tokyo Electron advancing 5.8 percent at 3,480 yen. Toyota Motor, the world's largest automaker, rose 1.3 percent to 3,050 yen, while Honda Motor Co added 1.7 percent to 1,991 yen.

Toshiba Corp surged 9.4 percent to 409 yen after its unit Westinghouse Electric and partner the Shaw Group signed a contract with Progress Energy to build two nuclear power units.

Isetan Mitsukoshi Holdings Ltd dropped 5.4 percent to 733 yen after Japan's largest department store operator reported a sharp fall in December sales, as consumers rein in spending on items such as clothing and luxury goods.

Trade was active on the Tokyo exchange's first section, with 2.2 billion shares changing hands, compared with 1.2 billion shares booked on Dec. 29, the last full-day trading of 2008. Advancing stocks slightly outpaced declining ones, 801 to 773.

Get the latest Forex news articles here.

PRECIOUS-Gold slips 2 pct as dollar strengthens

Gold slipped more than 2 percent in Europe on Tuesday, extending the previous session's losses, as the dollar strengthened to a fresh three-week high against the euro, denting the metal's appeal as a currency hedge.

Platinum and palladium were little changed after poor sales figures from automakers, the major buyers of the metals, as the bad demand news was largely priced in, analysts said. Spot gold was quoted at $843.00/845.00 an ounce at 1053 GMT, down from $858.90 late in New York on Monday but off its earlier low of $838.55.

U.S. gold futures for February delivery GCG9 on the COMEX division of the New York Mercantile Exchange were down $13.70 at $844.10. "The strong dollar is dampening precious metals prices," said Commerzbank analyst Eugen Weinberg.

The U.S. currency extended gains against the euro after a flash estimate of euro zone inflation data came in weaker than expected, increasing pressure on the European Central Bank to cut interest rates. Analysts said the prospect of an ECB rate cut at the bank's next interest rate meeting on Jan. 15 is pressuring the single currency, and consequently gold.

A firm dollar reduces gold's appeal as an alternative investment. But while the stronger dollar and reports of lacklustre jewellery sales weighed on prices, demand for the metal from exchange-traded funds -- which issue securities backed by stocks of physical gold -- remains firm.

ETF Securities, which operates Europe's largest gold-backed ETF, said holdings of its Physical Gold exchange-traded commodity PHAU.L rose 2 percent in the week to January 2 to 1.899 million ounces.

Holdings of the world's largest bullion ETF, the SPDR Gold Trust GLD, held at a record 780.23 tonnes on Monday. "Gold is holding (where it is) because of investment demand for gold ETFs, rather than demand from the physical side or as a hedge against the U.S. dollar," said Weinberg.

Firmer oil prices, which are holding just below $50 a barrel as supply fears were fuelled by Israel's incursion into Gaza and a dispute between Russia and Ukraine over natural gas, also lent some support to gold.

Among other precious metals, platinum and palladium were little changed despite the spate of poor sales numbers from U.S. and other carmakers. Toyota said on Tuesday it would shut all its factories in Japan for 11 days to combat a fall in demand. The global industry leader posted a 37 percent sales drop in December.

In the United States, data showed auto sales fell 36 percent in December, to close out the weakest year since 1992 in the world's biggest car market.

However, the news was in line with expectations. Fears over falling demand from carmakers, which consume around half of the world's platinum supply, have already knocked prices of the white metal down some 60 percent since March.

The market has steadied over the last month, however. "While platinum will track the moves of both gold and the dollar the metal appears steady after breaking out of the previous $780-880 range," said James Moore, an analyst with TheBullionDesk.com.

Spot platinum was quoted at $941/946 an ounce, against $946 late in New York on Monday, while palladium was little changed at $183/188 an ounce from $183.50. Spot silver eased to $10.84/10.92 an ounce from $11.22.

Track the performance of your favoured currency against the top 20 global currencies. Click here.