US & World Daily Markets Financial Briefing 09-12-2008

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Stocks fell Tuesday as disappointing outlooks from companies, including FedEx Corp and technology bellwethers, rekindled worries about the deepening recession.

A day after stocks soared to their highest level in a month, some investors chose to book profits as they reassess whether the market's latest recovery bid will be sustainable in the face of bleak corporate outlooks and mounting job cuts.

The Dow Jones industrial average fell 74.40 points, or 0.83 percent, to 8,859.78. The Standard & Poor's 500 Index declined 5.77 points, or 0.63 percent, to 903.93. The Nasdaq Composite Index shed 7.61 points, or 0.48 percent, to 1,564.13.

Japanese electronics company Sony Corp, the maker of PlayStation gaming consoles, said it will cut 16,000 jobs as fallout from the financial crisis hurts demand.

Shares of FedEx dropped more than 11 percent to $66.05 on the New York Stock Exchange after the package shipper cut its 2009 outlook. On the technology front, shares of Apple Inc weighed on Nasdaq, with a drop of 1.1 percent to $98.61.

Investors will get a glimpse of the housing market when a report on October pending home sales is issued at 10 a.m.

Even though the stock market has increasingly shown signs of shrugging off even the bleakest of news since hitting the bear market low of November 21, analysts said the recent run-up still warranted some caution, and said a bout of profit-taking was likely.

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Japan's Nikkei average rose 0.8 percent on Tuesday, with the yen's advance digging away at gains made by machinery firms such as Komatsu on hopes U.S. stimulus plans will prevent a recession there from deepening. Some exporters such as Honda Motor Co managed to cling to gains despite the dollar's falling to the lower 92 yen level, but others edged down, mainly electronics firms like Canon Inc.

Nintendo Co Ltd climbed 4.2 percent to 33,700 yen after it said sales of its Wii game console more than doubled during the week of the Thanksgiving holiday in the United States, apparently defying the retail gloom of the global economic crisis.

But market players said wariness remained about how long shares could rise given overall economic conditions.

"Wall Street shares rose on expectations, but things haven't gotten any better. In fact, the indicators are so bad they could hardly be worse," said Yutaka Miura, a senior technical analyst at Shinko Securities.

"Certainly we do have economic policies, but we still don't know exactly what this will result in, and the situation of the U.S. carmakers has yet to be resolved. This uncertainty is hitting the dollar and then stocks." The benchmark Nikkei gained 66.82 points to 8,395.87 after earlier rising to 8,499.60, its highest level in more than a week. The broader Topix rose 0.7 percent to 817.94

"There's reassurance to an extent because of stimulus plans from various nations, including the United States and China, and because it looks as though the Big Three may be safe for now," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"But we need something new to see more gains, something concrete."

U.S. stocks rallied to their highest level in a month on Monday on optimism that President-elect Barack Obama's proposed infrastructure spending could limit the depth of the recession and on hopes for the bailout of automakers GM, Ford and Chrysler CBS.UL.

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MACHINERY MOVES

But in one indication of how tough the situation still remains, Sony Corp announced after the close a swathe of restructuring steps including cutting production facilities by about 10 percent from the current 57 sites and eliminating some 8,000 workers in its electronics division.

The U.S. rally was powered by construction machinery companies, with Caterpillar surging almost 11 percent on expectations of the infrastructure spending.

Japanese machinery shares, strong on Monday, extended their rise for the same reason, although most had pared gains by the close.

Komatsu climbed 2.9 percent to 1,036 yen and Kubota rose 6.5 percent to 555 yen. Hitachi Construction climbed 3.3 percent to 995 yen.

Shipping firms also climbed on the same expectations, with the sea transport sub-index gaining 5.7 percent to become the third-strongest of the subindices.

Mitsui O.S.K. Lines gained 6.2 percent to 498 yen, while Nippon Yusen, Japan's largest shipping firm, rose 6 percent. Kawasaki Kisen rose 4 percent to 367 yen.

Honda climbed 6.3 percent to 1,845 yen, partly on relief about U.S. automakers. But Toyota Motor Co edged up just 0.7 percent to 2,750 yen.

Canon shed 0.4 percent and Hitachi Ltd lost 1.2 percent to 424 yen, while Panasonic Corp lost 1.2 percent to 1,070 yen.

Sony, though, rose 3.9 percent to 1,896 yen.

Trade was active on the Tokyo exchange's first section, with some 2 billion shares changing hands, compared with last week's daily average of 1.8 billion.

Advancing stocks outnumbered declining ones 823 to 763.

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Oil fell below $43 a barrel on Tuesday, reversing earlier gains as investors expected U.S. data to show another drop in fuel demand in the world's top consumer.

U.S. crude was down 54 cents at $43.17 a barrel at 1418 GMT (9:18 a.m. EST), after sinking earlier to $42.89.

London Brent crude eased by 59 cents to $42.83.

The downward trend for oil remained very much intact.

"$40 a barrel could be difficult to break, but we expect WTI to go lower in the coming months. GDP, oil demand weakness and the crude overhang are much clearer than OPEC cuts so far," said SG Commodities Research said in a weekly note.

Oil traders were awaiting the 1700 GMT release on Tuesday of the U.S. Energy Department's Short-Term Energy Outlook, which was expected to show downgrades in 2009 oil demand estimates.

In a forecast issued last month, the Energy Department said total U.S. oil demand was projected to fall by an additional 250,000 bpd, or 1.3 percent next year, after dropping 1.1 million bpd, or 5.4 percent, in 2008.

The outlook for global oil consumption is very much on the minds of ministers from the Organization of the Petroleum Exporting Countries, which meets on December 17 in Algeria.

OPEC is expected to reduce overall production by a minimum of one million barrels per day (bpd).

"Oil is on a count-down to OPEC now and everyone is expecting them to come up with something big -- probably a cut of 1-1.5 million bpd," said Rob Laughlin, senior oil analyst at brokers MF Global in London.

"If OPEC doesn't make a big cut, this market is in trouble."

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Gold prices slipped 1 percent on Tuesday, failing to hold earlier gains, as the stronger dollar versus the euro weighed on prices.

The precious metal ticked higher in earlier trade as a healthier tone to the equity markets boosted prices. However, dollar strength pushed it back into negative territory.

Spot gold was quoted at $767.50/769.50 an ounce at 1426 GMT, off a low of $761.80 but down from $771.30 late in New York on Monday. Earlier it touched a session high of $776.45.

U.S. gold futures for February delivery GCG9 slipped 90 cents or 0.12 percent to $768.40 an ounce.

"The euro came off a bit (versus the dollar) and gold is following suit," said Afshin Nabavi, head of trading at MKS Finance in Geneva.

"It is a very quiet week, with most of the Middle East closed throughout the week and a lot of the Far Eastern countries also on holiday," he added. "There has been very low volume in the last couple of days."

The dollar gained against the euro as risk appetite waned, with investors focusing their attention on the dire outlook for the global economy.

The precious metal is often bought as an alternative investment to the U.S. currency and moves in the opposite direction to it.

The euro suffered as the main reading of the German ZEW economic sentiment index for December came in better than expected, but the current conditions component showed a larger than expected deterioration in the euro zone's biggest economy.

The other main external driver of gold, the price of oil, also slipped on Tuesday at just over $43 a barrel.

The market is awaiting a demand report from the U.S. energy department later in the session and the production meeting next week of the Organization of the Petroleum Exporting Countries (OPEC) for signs of the next direction of trade.

Falling crude prices can undermine confidence in commodities as an asset class, and dent interest in gold as a hedge against oil-led inflation.

However firmer stock markets are providing some support for prices. The pan-European FTSEurofirst 300 index rose 1.2 percent, reversing earlier losses.

The European Central Bank said gold and gold receivables held by euro zone central banks fell by 42 million euros in the week ending December 5.

PLATINUM WILTS

Among the other precious metals, platinum slipped a touch as investors worried slowing economic activity would hit demand for the metal, which is chiefly used to make catalytic converters.

Economic news was weak on Tuesday. Data showed Japan's economy contracted at a faster pace than anticipated in the third quarter, while British industrial output fell at its sharpest pace in nearly six years in October.

A survey from the Organisation for Economic Coperationa and Development (OECD) also said the U.S. economy will probably get worse before it gets better.

News on Monday of developments in U.S. government plans to bail out ailing carmakers boosted the precious metal that session, but the fillip was short-lived.

"We would still exercise caution in the current environment, particularly since there is a risk that the package would be viewed as simply a short-term solution that does not resolve the underlying problem," said Barclays Capital analysts in a note.

Spot platinum eased to $800/820 an ounce from $821 late in New York on Monday, while palladium was steady at $173/178 an ounce from $173.

Spot silver was quoted at $9.76/9.84 an ounce against $9.95.

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