US & World Daily Markets Financial Briefing 07-01-2009

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US STOCKS-Wall St drops on jobs gloom, Intel warning

NEW YORK - U.S. stocks fell on Wednesday  as signs of more labor market deterioration and a disappointing  revenue outlook from technology bellwether Intel Corp  heightened concerns about the severity of the recession.
  
Coming two days before the key U.S. nonfarm payrolls report  for December, the ADP private sector jobs data underscored the  challenge facing President-elect Barack Obama as he pushes  ahead with plans to revive the world's largest economy.
   
Even before Intel's gloomy outlook the corporate news flow  had turned bearish as Alcoa said late on Tuesday it would cut  more than 15,000 jobs, halve capital spending and sell  businesses as it reduces aluminum production in the face of the  global economic downturn.
   
Shares of chip-maker Intel tumbled 6.3 percent to $14.41 on  Nasdaq, putting the stock among the top drags on the Dow, along  with Alcoa, down 8.4 percent at $11.10. "I can't imagine this (ADP data) is going to bode very well  for any kind of forecasting going into the nonfarm payroll and  unemployment rate numbers that we're going to see on Friday,"  said Dave Lutz, managing director at Stifel Nicolaus in
Baltimore. "It is absolutely terrible."
   
The Dow Jones industrial average fell 188.77 points,  or 2.09 percent, to 8,826.33. The Standard & Poor's 500 Index  slid 19.64 points, or 2.10 percent, to 915.06. The  Nasdaq Composite Index tumbled 43.06 points, or 2.61  percent, to 1,609.32.
   
Other tech bellwethers heading lower included Apple , down 2.3 percent at $90.89, and Microsoft Corp , off more than 3 percent at $20.10. The semiconductor index was down nearly 5 percent  after Intel said preliminary fourth-quarter revenue was worse  than expected, indicating the heavy toll from the economic
slump on both business and consumer spending.
   
In a sign of how broadly fallout from the recession is  spreading, Time Warner Inc forecast a fourth-quarter loss, sending its stock down nearly 8 percent to $10.12.  According to ADP, a private employment service, U.S.  private employers shed 693,000 jobs in December, up sharply  from the revised 476,000 jobs lost in November and far more  than economists estimated.
   
Obama, set to be sworn in on Jan. 20, has proposed the  largest U.S. infrastructure investment since the 1950s and  massive tax cuts for consumers and businesses.
   
But it is uncertain how soon the boost will translate into  an upturn in profits to sustain the market's attempted recovery  since its November bear market low as job losses mount. On Tuesday the minutes of the U.S. Federal Reserve's Dec.  15-16 policy showed that authorities expected the economic  outlook to be weak for some time.
   
Obama was scheduled to make more personnel announcements on  Wednesday but the focus continued on the economy. The new U.S.  Congress began work to pass a stimulus package. Obama expects
to inherit a budget deficit approaching $1 trillion and says  his administration will have to make tough budget choices.
   
The benchmark S&P 500 has risen 21 percent since its  Nov. 21 low. Sentiment also took a knock on a revelation that  India's Satyam Computer Services falsely  inflated earnings for years.

The news sent India's main equity  index SENSEX plunging 7 percent.. The fraud at the major business software and back-office  services company could add to investor anxiety about the integrity of the markets, said Rick Meckler, president of  investment firm LibertyView Capital Management in New York.

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FOREX-Dollar falls broadly as euro recoups losses

LONDON - The dollar fell broadly on Wednesday, reversing sharp gains against the euro earlier in the week as concerns over the U.S. economy and expectations for continued low U.S. interest rates overrode earlier optimism.

But the euro remained vulnerable as data showed a rapidly weakening economy and easing inflation, which raised prospects for the European Central Bank to cut rates again next week.

The dollar pushed back from one-month highs against the euro and yen on profit-taking, including central bank buying of euros at lower levels for reserve-management purposes and interest from funds.

"We've seen a substantial move in the past few days, so players are taking profits," said Neil Mellor, currency strategist at Bank of New York Mellon. "It's hard to predict the trend based on price moves from the past few days as the market is still illiquid," he added.

Data on Wednesday showed euro zone producer prices fell sharply in November, logging a record monthly decline on a sharp drop in energy costs.

That came on the heels of data the previous day showing a smaller-than-expected rise in consumer prices, raising expectations that the European Central Bank will be ready to ease monetary policy, not only at its meeting next week, but also going forward.

Separate data showed a bigger-than-expected rise in German unemployment  "Given widespread evidence of sharply diminishing inflationary pressures and deepening euro zone recession, we believe there is a compelling case for the ECB to cut interest rates appreciably further," said Howard Archer, economist at IHS Global Insight.

By 1159 GMT, the euro was up 0.8 percent on the day at $1.3616, having dipped to a one-month low of $1.3308 on Tuesday according to Reuters data.

The single currency clawed back some of its major losses against sterling to gain as high as 91.75 pence  but stayed some way off record highs scored above 98 pence in late December.

The yen gave up some gains earlier in the global session on a newspaper report that Japan's government will seek to scrap capital gains taxes for foreigners investing in Japanese companies through funds, which could encourage capital flows into the country.

The dollar fell 0.5 percent against a basket of six major currencies to 82.341, while it also retreated 0.5 percent to 93.19 yen after hitting one-month highs the previous day.

"The dollar rally is showing signs of fatigue. Maybe there is a bit of nervousness ahead of the U.S. non-farm payrolls on Friday," said Audrey Childe-Freeman, senior currency strategist at Brown-Brothers Harriman in London.

"The depressed state of the economy is something that is priced into the market already, but we've seen a remarkable recovery in the dollar and that's losing momentum. Plus non-farm payrolls will present a pretty ugly picture," she added.

U.S. data on Wednesday include a precursor to the Friday's job report, with the ADP private employment report, due at 1315 GMT, expected to show that 473,000 jobs were shed in December.

Minutes released on Tuesday from the U.S. Federal Reserve's policy-setting meeting last month showed concern that downside risks remain substantial, and indicated interest rates would remain low for an extended period.

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European shares down; utilities, BP lead fallers

LONDON - European shares declined by midday on Wednesday after rising for six consecutive sessions, as oil major BP led the energy sector down, while rising German unemployment provided further evidence of economic weakness.
     
At 1201 GMT, the FTSEurofirst 300 index of top European shares was down 0.5 percent at 884.84 points after finishing 1.9 percent higher in the previous trading session, its highest close since Nov. 10.
      
The index lost more than 44 percent in 2008, hurt by a credit crisis and several major economies going into recession. The economic calendar this week includes the Bank of England's rate decision on Thursday, and the non-farm payrolls data in the United States on Friday.
      
"January this year is in contrast to last year, when the non-farm data was more of a shock," said Philip Isherwood, strategist at Dresdner Kleinwort. "But now we know more jobs are being lost.  "No one will be surprised by the Bank of England cutting rates again on Thursday. They're not doing it for fun. The extraordinary policy response is in proportion to the problem."
      
"Equities will be fine as long as the bonds markets are fine. We need governments to be able to spend, and that requires them to be able to sell their debt. If they don't, governments can't underwrite a recovery, which matters for equity markets."
      
Utilities were among the biggest losers. Shares in Germany's largest utility EON fell 2.9 percent and its peer RWE dropped 1.9 percent amid concerns of natural gas supply bottlenecks and hurt by easing oil prices.  
      
Russian gas supplies to Europe through Ukraine shut down completely on Wednesday, leaving several European Union member states, including Germany, without Russian fuel in freezing mid-winter temperatures.
     
Utilities were further hit by Scottish & Southern Energy  saying it is to place about 40 million shares to boost its balance sheet, representing up to 5 percent of its capital. Shares in Scottish & Southern slid 7.3 percent while National Grid was 4.9 percent lower. GDF Suez fell 1.3 percent.
      
Oil heavyweight BP fell 3.6 percent on market talk the company was telling analysts that its fourth-quarter earnings would be lower than expected, three dealers said. BP declined comment.
      
Some other energy stocks fell as crude dipped slightly, but it was still trading at more than $48 a barrel, propped up by tensions in the Middle East and the Russian gas row. Royal Dutch Shell, Repsol and  Statoil  fell between 0.8 and 1.8 percent.
         
In macro news, Germany posted its first rise in unemployment in almost three years, a day after the global economic downturn forced U.S. aluminium giant Alcoa to announce 15,000 job cuts and slash output. Across Europe, the FTSE 100 index and Germany's DAX  were down 1.3 and 0.7 percent respectively. France's CAC 40 was up 0.1 percent.
      
Truck maker Scania fell 4.4 percent after Germany's Porsche Automobil Holding SE has said it would make a mandatory takeover offer for the company at the lowest level allowed under takeover rules. Marks & Spencer shares rose 4.7 percent after Britain's biggest retailer announced weak, but broadly as-expected, third-quarter sales figures.

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Telcos, banks push HK shares down 3.4 pct, turnover swells

HONG KONG - Hong Kong shares dropped 3.4 percent on Wednesday as China Construction Bank slid after Bank of America sold down its stake while telecom stocks retreated after Beijing handed out long-awaited 3G licences.

Turnover swelled to HK$90 billion ($11.6 billion), its strongest since September 2008, but Hong Kong shares underperformed most regional rivals, which were boosted by hopes for an economic recovery later this year.

The Hang Seng Index .HSI finished 522.05 points lower at 14,987.46 points after testing a three-month high at the open. China Mobile fell 5.5 percent to HK$78.45 after Beijing handed out the long-awaited licences for next generation (3G) mobile networks Wednesday afternoon.

The world's largest telecom has been granted the licence for the untested homegrown TD-SCDMA network which is expected to be more costly and complicated to roll out than proven technology that Unicom and China Telecom will using.

"Buy on rumours, sell on news; that's what is going on with the Chinese telecom companies," said Peter Lai, director with DBS Vickers. "There are worries that the 3G networks which call for a tremendous investments may put a drag on telecom shares," he said.

The spending on network equipment by the three telecom carriers is pegged at $41 billion over the next two years. China Unicom, which soared nearly 17 percent in anticipation of the issuance of 3G licences, pulled back 10.6 percent to HK$9.19 while China Telecom gave up 5 percent.

Telecom equipment makers also gave up a part of their recent gains with ZTE down 8.5 percent and China Communications Construction falling 7.2 percent. Taiwanese handset maker Foxconn International Holdings, which was 2008's worst performing blue chip, jumped 5.4 percent, taking its total gains since the beginning of the year to more than 50 percent.

CITIC Pacific, another stock that was hammered down in 2008 after revealing a $2 billion hedging loss, climbed 6.4 percent. China Construction Bank slid 8.8 percent to HK$4.06 while top lender ICBC gave up 7.3 percent in sympathy to fall to HK$3.96.

"Investors are quite bearish about Chinese banks in the first half of 2009 with the central bank expected to cut interest rates further, piling on pressure on earnings," said Patrick Shum, strategist with Karl Thomson Securities. "And strategic investors will continue to sell their shares as they need the money," he said.

Bank of America sold more than 5.6 billion shares, or nearly 13 percent of its holding, in Construction Bank at HK$3.92 apiece, a 12 percent discount to the stock's last closing price. The China Enterprises Index of top locally listed mainland Chinese firms slipped 4.6 percent to 8,244.68, weighed down by losses in banking shares.

Shares in Semiconductor Manufacturing International Corp (SMIC) gained 2.9 percent after sources said China's top contract chip maker was discussing the possibility of selling a strategic stake to Intel Corp. Shares in power equipment maker Shanghai Electric Group slid 13.2 percent after it cut its net profit forecast for 2008.

The company said late on Tuesday its net profit for 2008 may come in 10 percent to 13 percent under its original 2.9 billion yuan ($424.2 million) forecast made last November as customers deferred delivery of its products.

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PRECIOUS-Gold steadies, supported by dollar; platinum up

LONDON - Gold steadied in Europe on Wednesday, with a softer dollar and firm investment demand supporting prices but weaker oil markets keeping a lid on gains.

Platinum meanwhile climbed to a near three-month high as investors switched their attention from fears over demand from carmakers -- the major buyers of the precious metal -- to the gloomy outlook for production as prices fall.

Spot gold was quoted at $864.10/865.70 an ounce at 1055 GMT, against $863.35 late in New York on Tuesday. U.S. gold futures for February deliver GCG9 on the COMEX division of the New York Mercantile Exchange were down 70 cents at $865.30.

"Gold has found pretty good support around yesterday's close," said Citi analyst David Thurtell. "(Bullion) is looking strong, if you look at the bigger picture. Investors are looking for alternative assets at the moment."

The precious metal is benefiting from falling interest rates, which cut the opportunity cost in holding gold, and from uncertainty over the global economic outlook, he said.

The dollar is also providing some short-term support. It slipped broadly on Wednesday after striking a one-month high against the euro as traders fretted over the outlook for the U.S. employment market.

Gold is often bought as an alternative investment to the U.S. currency and tends to move in the opposite direction to it. Demand for the precious metal to back exchange-traded funds is also firm. The world's largest gold-backed ETF, the SPDR Gold Trust GLD, said its holdings rose to a record 788 tonnes on Tuesday.

SPDR has now overtaken the Bank of Japan as the seventh largest holder of gold worldwide, Commerzbank said.

However, weakness in oil is capping gains in gold. Crude prices slipped towards $48 a barrel on Wednesday as gloomy U.S. economic data sparked a bout of profit taking.  Traders are now looking ahead to economic data due later in the week, including key U.S. non-farm payrolls data on Friday, for clues as to the next direction of trade.

Disappointing payrolls data "could lead to weakness on the equity markets and push more people towards gold," said Citi's Thurtell. Meanwhile platinum climbed more than 2 percent after a positive session in Asia, boosted by bargain hunting and a resurgence of fears falling prices may impact supply.

Spot platinum rose through the $1,000 an ounce level for the first time since October 15 to reach a session high of $1,000.50 an ounce. It was later quoted at $988/993 an ounce, up from $965.50 an ounce late in New York on Tuesday.

The precious metal's resilience to the ailing car market has boosted hopes its price slide may be at an end, analysts said. Platinum held steady through most of December, after bad news from carmakers knocked prices down more than 60 percent from their March 2008 highs of $2,290 an ounce.

But with those demand fears now factored into prices, any positive news from the car sector is being seized upon as a reason to buy at lower prices. "So much of the auto story is now factored in," said Tom Kendall, precious metals strategist at Mitsubishi. "And things are starting to look a bit more positive -- GM said this morning it may not need to go back to the government for more cash."

"We have also seen quite a bit of incremental (production) capacity taken out from the platinum sector," he added. "That is certainly part of what is playing into the positive sentiment for platinum right now."

Prices had already climbed in Asia as buyers stocked up on the metal ahead of the Chinese New Year, encouraged by the weaker yen and technical factors. Among other precious metals, spot palladium edged up to $197.50/202.50 an ounce from $196, while spot silver eased to $11.34/11.42 an ounce from $11.44.

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