US & World Daily Markets Financial Briefing 09-01-2009

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US STOCKS-Wall St falls on labor market worry, Chevron

NEW YORK - U.S. stocks fell on Friday after government data showed the labor market crumbled further in December, adding to worries about the profit outlook and a deepening recession. Payrolls were slashed a bit less than expected but the U.S. jobless rate climbed to its highest in nearly 16 years, further pressuring consumer spending and corporate profits.

Top drags included energy shares after Chevron Corp, down 1.6 percent, joined a growing list of companies warning about their profit outlooks. Technology shares also took a beating, causing the Nasdaq to briefly wipe out its year-to-date gains amid a slide in the shares of such bellwethers as Apple Inc, off over 2 percent.

"The economic numbers are going to get worse before they get better. It fits in line with the notion of about a six percent hit to GDP," said Michael Strauss, chief economist at Commonfund in Wilton, Connecticut, referring to U.S. gross domestic product, which measures output of goods and services.

"Does the market react to today's numbers or does it react to what today's numbers will mean for fiscal monetary stimulus and how conditions might change six to nine months from now? That's going to be the tug of war today."

The Dow Jones industrial average slid 138.19 points, or 1.58 percent, to 8,604.27. The Standard & Poor's 500 Index tumbled 16.27 points, or 1.79 percent to 893.46 after being down 2 percent. The Nasdaq Composite Index plunged 41.96 points, or 2.59 percent, to 1,575.05.

More bleak news on the employment front presents a major headwind for any recovery in the market. The sell-off caused the benchmark S&P 500 to trim its advance since its Nov. 21 intraday bear-market low to 18 percent.

While payrolls were slashed a bit less than expected -- 524,000 people lost their jobs rather than the 550,000 seen in a Reuters poll -- December's cuts put losses for 2008 at 2.6 million, the most since 1945.

When warning about its outlook, Chevron, a Dow component and the second-largest U.S. oil and gas company, cited the impact of lower energy prices on its exploration and production business.

Chevron shares fell to $73.02. On Nasdaq, shares of Apple, the maker of the iPhone, dropped to $90.53. The semiconductor index was off more than 3 percent. Responding to recession's grip on the economy, U.S. President-elect Barack Obama is pushing for a new stimulus plan set to include tax cuts and major public works spending that could total nearly $800 billion.

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FOREX-Dlr slips vs yen ahead of US jobs data

LONDON - The dollar slipped against the yen on Friday ahead of U.S. payrolls data due later in the day that were expected to show a massive reduction in jobs, while the euro slipped after a mixed bag of regional economic data.

The December U.S. job report is expected to show a fall of 550,000 jobs and show a higher unemployment rate, but much of the news may already have been discounted following a bleak U.S. private-sector jobs report on Wednesday.

Currency moves in London were driven by position adjustments ahead of the data, analysts said, adding that risks were tilted towards a slight upside in the dollar as a grim reading has already been factored into the market.

"The market is now expecting an extremely weak report, and so risk reward is heading the opposite direction," said Naeem Wahid, currency strategist at Bank of Scotland Treasury Services in London. "A figure in the 650,000 area wouldn't be a big shock, so if it doesn't come out that weak there could be a small upside for the dollar."

Following Wednesday's grim U.S. ADP report, which showed private-sector job cuts of 693,000, economists have revised their forecasts for U.S. nonfarm payrolls in December to show job losses of 550,000, from an original Reuters poll estimate of 500,000. Forecasts ranged from a loss of 750,000 jobs to a decline of 400,000.

The data is due out at 1330 GMT. The dollar fell 0.4 percent to 90.67 yen, near 90.55 yen touched earlier in the day, its weakest since the start of the year. The U.S. currency  slipped 0.1 percent to 81.476 against a basket of currencies.

By 1205 GMT, the euro was little changed at $1.3714, having slipped to a session low of $1.3633 earlier in the day. The euro was briefly buoyed on news that Russia reached agreement to end a gas dispute with Ukraine but analysts said that movements were ultimately subdued, even as euro/dollar volatility remained significantly high above 20 percent.

Figures on Friday showed a bigger-than-expected drop in French industrial output, adding to the argument that the euro zone economy is further deteriorating, and keeping selling pressure on the euro.

The euro ultimately received little cheer from an unexpected rise in euro zone retail sales, as the outlook for consumer demand remains weak amid plunging business morale and growing unemployment. Friday's readings came on the heels of data on Thursday showing euro zone economic sentiment set record lows in December amid rising unemployment, and inflation expectations tumbled.

Given such an economic picture, analysts expect that the European Central Bank will have to continue cutting interest rates, having already cut them to 2.5 percent. Market participants expect a rate cut of 50 basis points or more when the ECB holds a policy-setting meeting next week.

"The ECB will need to cut by more than is currently priced in with downside implications for the euro that may be amplified by the ECB's seeming intransigence on policy easing," analysts at Barclays Capital said in a note.

Some ECB policymakers have softened their stance as euro zone inflation has fallen and the economy is expected to deteriorate further. But market players do not as yet expect rates in the euro zone to fall as dramatically as those in the United States or Britain.

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European shares down, eyes on U.S. jobs data

FRANKFURT - European shares had edged lower by midday on Friday, led down by heavyweight mining stocks and caution ahead of U.S. jobless figures later in the day that are expected to make grim reading.

At 1138 GMT, the FTSEurofirst 300 index of top European shares was down 0.2 percent at 869.83 points, having fallen 0.8 percent on Thursday.

The United States, the world's largest economy, is expected to have shed 550,000 jobs in December, making it the worst single month of job losses in 34 years, when it announces its non-farm payrolls at 1330 GMT. The unemployment rate is expected to rise to a 15-year high of 7 percent.

"There is a lot of nervousness in the market ahead of the jobless data. The market is bracing for a horrendous figure," said Henk Potts, strategist at Barclays Stockbrokers. "This is partly offset by Barack Obama's stimulus package that was fleshed out a bit more yesterday."

President-elect Barack Obama urged lawmakers on Thursday to work day and night to pass a massive stimulus plan that is likely to cost $800 billion or more to help the battered domestic economy.

Mining stocks came under pressure, with the DJ Stoxx basic resources index the leading sectoral decliner, down 1.8 percent. "The global demand for resources will remain weak," Potts added. Shares in Anglo American, Xstrata and Rio Tinto were all down between 3.2 and 6.6 percent.

Banks also declined, with Commerzbank down 6.8 percent, as investors digested the high price, now including part nationalisation, that Germany's second-biggest lender was paying to buy rival Dresdner Bank.

Deutsche Bank dropped 5.7 percent, as traders pointed to speculation that the company may post a big loss in its proprietary trading segment. The bank declined to comment.

Across Europe, the FTSE 100 index, Germany's DAX and France's CAC 40 were down between 0.1 and 0.6 percent. Across Europe, weak industrial output data painted a bleak picture. British manufacturing output slumped at its fastest annual pace since the early 1980s and much more than expected in November.

In Germany, industrial output fell by more than expected in November, dipping 3.1 percent from the previous month due to a sharp downturn in manufacturing activity.

In Spain, output fell by a record 15.1 percent year-on-year. Sweden also saw a record drop, 11.9 percent year-on-year, and in France the slide was a much sharper than expected 2.4 percent month-on-month. "An end to the economic downturn is not in sight, and the upcoming corporate earnings reporting season for the final quarter of 2008 should be peppered with profit warnings," Landesbank Berlin said.

Insurance stocks were up, with the DJ Stoxx insurance index the leading sectoral gainer, up 0.9 percent. Germany's Allianz was the top performer in the sector, up 5.3 percent, as traders and analysts pointed to news that the sale of its Dresdner Bank unit to Commerzbank was nearly concluded.

"There is a palpable sense of relief that Allianz has ducked out of costs from Dresdner," says a Frankfurt-based trader. Munich Re, Old Mutual and Irish Life & Permanent were all up between 1.9 percent and 8.2 percent.

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Hong Kong shares close weaker ahead of US jobs data; Lenovo falls further

HONG KONG - Share prices closed weaker in cautious trade ahead of key US jobs data, with PC maker Lenovo shedding another 9.4 pct as its earnings warning and job cuts prompted target cuts by brokers.
   
China banks were mixed after a sell-off in the previous two days on concerns over share sales by strategic investors. Some mainland power firms outperformed on reports that the Chinese government may inject fresh capital into the industry.
   
Ping An Insurance slumped over 4 pct after UBS downgraded it to "sell", citing valuation concerns. The Hang Seng index closed down 38.47 points or 0.27 pct at 14,377.44, off a low of 14,297.41 and high of 14,673.60. Over the week, the index lost 665 points or 4.42 pct. Turnover was 45.14 bln hkd.
   
"Key large-caps, including China Mobile, were hit by strong selling pressure in the afternoon; that's why the rally in morning trade fizzled out," said Linus Yip, strategist at First Shanghai Securities. "Many investors turned cautious ahead of the release of key jobs data in the US," he said, while also noting extended selling in some China banks.
   
US non-farm payrolls data for December will be released tonight. There are fears that the data could be grim as the economic downturn prompted more firms to reduce employee headcount. "Fear of more share placements in China banks made scores of investors shy away," Yip added.
   
China banks ended mixed after falling sharply in the past two days. Bank of China (BOC) was unchanged at 1.96 hkd after falling 8 pct yesterday on news that an entity controlled by tycoon Li Ka-shing sold 2 bln shares of the Chinese lender. A media report said Royal Bank of Scotland is also considering selling its holdings in BOC.
   
China Construction Bank (CCB) gained 0.04 hkd or 1.03 pct at 3.92 in a modest rebound after sharp falls in the past two days following news that Bank of America cut its stake in the lender. BoComm was up 0.02 hkd or 0.36 pct at 5.65. The bank said it has been informed by HSBC that the UK-based lender will not reduce its stake but rather will increase it under appropriate conditions.
   
HSBC owns about 19 pct of BoComm, China's fifth-biggest lender.  Among other China banks, ICBC lost 0.4 hkd or 1.08 pct at 3.65, China Merchants Bank was down 0.16 hkd or 1.17 pct at 13.54 and China CITIC Bank rose 0.07 hkd or 2.57 pct to 2.79.
   
Among large caps, HSBC was up 0.70 hkd or 0.95 pct at 74.70, China Life dipped 0.05 hkd or 0.21 pct at 23.60 and Hutchison Whampoa was down 0.30 hkd or 0.71 pct at 42.25. HKEx slipped 0.25 hkd or 0.32 pct at 78.25, extending yesterday's 5.4 pct fall. Citigroup downgraded the stock market operator to "sell" due to valuation concerns.
   
Some China power producers were boosted by mainland media reports that the government may inject new capital into the firms. China Power surged 0.08 hkd or 5.26 pct to 1.60 and China Resources Power was up 0.26 hkd or 1.88 pct at 14.06, while Datang Power slipped 0.02 hkd or 0.52 pct to 3.84.
   
China Mobile was down 0.70 hkd or 0.92 pct at 75.30, but other telecom operators were up after recent falls. China Unicom rose 0.44 hkd or 5.17 pct at 8.95 and China Telecom was up 0.03 hkd or 1.05 pct at 2.89. Beijing issued 3G licenses this week to China Mobile, China Unicom and China Telecom.

Ping An slumped 1.70 hkd or 4.27 pct to 38.10 after UBS downgraded the insurer to "sell" from "neutral" and maintained a target of 36.3 hkd, citing rich valuation. It noted that the stock is currently valued at 2.6 times forecast 2009 embedded value, higher than the 2.2 times of China Life, China's top insurer.
   
Airline stocks retreated after drawing some interest in early trade on news that China will suspend collection of tax on airlines' fuel surcharges.
   
China Southern lost 0.01 hkd or 0.74 pct at 1.34, Air China slumped 0.13 hkd or 5.51 pct to 2.23 and China Eastern was down 0.06 hkd or 5.08 pct at 1.12. Lenovo fell 0.18 hkd or 9.42 pct to 1.73, extending its 26 pct slump yesterday after announcing that it is likely to post a loss for the December quarter and that it will cut 2,500 jobs or about 11 pct of its global workforce.
   
Several brokers cut target and revised their earnings estimates following the company's announcement. JP Morgan cut its earnings estimates for Lenovo and said it now expects the personal-computer maker to report a loss for the year to March 2009 and very little profit in the next fiscal year.
   
The brokerage expects Lenovo to report a net loss of 69 mln usd for the year to March 2009, against a previous estimate for a profit 183 mln usd. The profit forecast for the next fiscal was cut to 46 mln usd from 157 mln.
   
Goldman Sachs said it is trimming its target to 1.80 hkd from 1.90, while Morgan Stanley cut its target to 1.40 hkd from 1.80. Oil firms were mixed as crude oil prices rose today on fears the conflict between Israel and Hamas in Gaza will intensify.
   
CNOOC was up 0.8 hkd or 1.09 pct at 7.45, PetroChina was down 0.04 hkd or 0.57 pct at 7.02 and China Petroleum & Chemical Corp (Sinopec) up 0.01 hkd or 0.21 pct to 4.73. Among metals and mining firms, Aluminum Corp of China (Chalco) fell 0.08 hkd or 1.75 pct to 4.50, Jiangxi Copper gained 0.12 hkd or 1.87 pct at 6.53 and Angang Steel down 0.18 hkd or 2.12 pct at 8.30.
   
Coal firm China Shenhua was down 0.60 hkd or 3.39 pct at 17.10.  Zijin MIning was up 0.08 hkd or 1.83 at 4.45 hkd after news that it will build a 2.6 bln yuan copper refinery in Fujian province in partnership with its
major shareholder.
   
The Hang Seng China Enterprises ended down 36.21 points or 0.47 pct at 7,723.81. First Shanghai Securities' Yip said trade next week will depend largely on the Wall Street's performance tonight and US jobs data .
   
"If the jobs data is weaker than expected, this will likely pressure Wall Street and cause some weakness to the local market," he said. He said China banks will remain fragile "because investors fear more share placements in the sector."

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PRECIOUS-Gold edges down ahead of jobs data, dollar weighs

LONDON - Gold prices edged down in Europe on Friday, pressured by a slight firming in the dollar versus the euro and with trading cautious ahead of key U.S. non-farm payrolls data due later in the session.

Spot gold slipped to $853.75/855.75 an ounce at 1027 GMT from $856.10 late in New York on Thursday. It has remained in a narrow range for much of the day ahead of the U.S. data release at 1330 GMT.

U.S. gold futures for February delivery GCG9 on the COMEX division of the New York Mercantile Exchange rose 10 cents to $854.60. Trading is likely to remain muted ahead of the employment data, a key indicator of the health of the U.S. economy.

U.S. employers probably cut the most jobs in at least 34 years last month as the global economic crisis gathered pace, according to a Reuters poll.

Economists responding to the survey expect non-farm payrolls to register a drop of 550,000 jobs in December.  "Clearly this is a very important number, so trading is going to be a bit cautious ahead of (that)," said RBS Global Banking & Markets commodity strategist Stephen Briggs.

In the short-term, gold is taking its cues predominantly from the currency markets. The dollar firmed a touch against the euro as the single currency suffered from the release of dismal European economic data. A stronger dollar tends to pressure gold, which is often bought as an alternative asset to the U.S. currency and tends to move in the opposite direction to it.

Oil prices, which also tend to influence gold, steadied above $40 a barrel in anticipation of the data. The positive effect of a potential supply cut from Saudi Arabia is balanced by an impending resolution to the Russia-Ukraine gas spat that could allow supplies to resume, anlaysts said.  In the longer run, concern over the prospects for the global economy continue to support gold as a haven from risk.

However, jewellery buying is relatively lacklustre and strong demand for investment coins and bars is said by traders to have slackened since its autumn peak.

In India, the world's leading market for gold jewellery, buying remains muted with prices at relatively high levels. "There is hardly any demand at these prices," said Mayank Khemka, managing director of bullion importer Khemka International in Delhi.

Platinum has posted modest gains since the beginning of the year after a sharp sell-off in the last nine months of 2008, which knocked prices down 65 percent from their March highs.

However, it is still likely to suffer in 2009 from falling demand from carmakers, the major consumers of the white metal. Investec cut its 2009 platinum forecast by 28 percent to $970 an ounce, although it said it remains positive on the longer-term outlook.

"We see downside risk to the platinum price in the near-term," it said. "The outlook for vehicle sales, which accounts for 50 percent of platinum and palladium demand and 80 percent of rhodium demand, remains very poor."

Spot platinum was quoted at $991/996 an ounce, little changed from $991.50 late in New York on Thursday, while palladium was at $193.50/198.50 an ounce from $194.50.

Spot silver was at $11.14/11.20 an ounce against $11.08. The world's largest silver-backed exchange-traded fund, the iShares Silver Trust, said its bullion holdings rose 1 percent or just over 55 tonnes on January 8.

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