US & World Daily Markets Financial Briefing 11-09-2008

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US STOCKS-Wall St opens sharply lower on banking fears

NEW YORK - Wall Street opened more than 1 percent lower on Thursday as concerns about the health of the financial sector cut into investors' appetite for risk.

Shares of Lehman Brothers' plunged 40 percent to $4.33 right after the opening bell as the bank failed to announce definitive deals to raise much-needed capital.

The Dow Jones industrial average sank 119.93 points, or 1.06 percent, at 11,148.99, while the Standard & Poor's 500 Index fell 16.26 points, or 1.32 percent, at 1,215.78. The Nasdaq Composite Index .IXIC was down 29.98 points, or 1.35 percent, at 2,198.72.

US weekly jobless claims fall 6,000 to 445,000; cont. claims at almost 5 yr high

WASHINGTON - The number of individuals filing new claims for unemployment insurance fell in the latest week, while the number of individuals continuing to file claims for unemployment rose the highest level seen in nearly five years, the Labor Department said Thursday.
   
The number of first-time claims filed in the week ending September 6 fell by 6,000 to 445,000, above the 440,000 claims economists polled by Thomson Reuters IFR Markets were expecting.
   
The four-week moving average for initial claims rose by 250 to 440,000. Economists prefer the four week moving average because it smoothes out fluctuations in weekly data.
   
The number of people continuing to receive unemployment insurance in the week ending August 30 jumped by 122,000 to 3.525 mln, the highest level since October 2003. Economists were expecting continuing claims to rise to 3.463 mln.
  
The four-week moving average for continuing unemployment claims increased by 36,750 to 3.429 mln, the highest level since November 2003.

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FOREX-Dollar rallies broadly, hits 1-yr high vs euro

LONDON - The dollar hit a one-year high against the euro and a basket of currencies on Thursday due to a wave of risk aversion, while the New Zealand dollar fell to a two-year low after a large central bank interest
rate cut.
      
The dollar's rally kicked off earlier in the day, after a 50 basis point rate cut by the Reserve Bank of New Zealand to 7.5 percent wrong-footed many in the market who had been anticipating a smaller, 25 basis point easing.
      
Risk aversion stung the euro, and broadly boosted the low-risk, low-yielding yen, which hit a two-year high against the single European currency. The Japanese currency also gained on high-yielders such as the New Zealand and Australian dollars.
      
The dollar extended its rally after a pause earlier in the week, when the U.S. Treasury's move to take over mortgage agency giants Freddie Mac and Fannie Mae underlined weakness in the U.S. financial sector.
     
Dollar appetite has since returned, particularly after the European Commission on Wednesday forecast that regional growth will halve in 2008 from 2007, suggesting the euro zone is highly vulnerable to U.S. economic weakness

"The euro zone economy outlook is looking increasingly gloomy," said David Tinsley, economist at nabCapital. "The source of volatility is coming from the risky side of the equation, it's coming more from the euro zone economy rather than the U.S. economy, although there's still a substantial amount of risk there as well."
      
The euro tumbled more that half a percent to $1.3894, its lowest level since September 2007.  Against a basket of currencies belonging to major U.S. trading partners, the dollar rallied as high as 80.375, a level not seen since September last year.
       
Triggering the dollar's rally was a 1.1 percent spill in the New Zealand dollar to $0.6439, its weakest level since September 2006, after the RBNZ's second consecutive rate cut decreased the high-yielding currency's rate advantage.
      
"It's part of a longer-term theme we've been seeing, where one of the G10 currencies gives way and it just cascades through the other currencies and before you know it, it's generalised dollar strength," said Adam Cole, global head of currency strategy at RBC Global Markets.
      
The New Zealand unit dropped nearly 2 percent to 68.83 yen, its weakest in more two years, and analysts say the view for more monetary loosening will keep the currency under selling pressure. The yen rallied across the board, sending the dollar down more than half a percent to 106.75 yen. The euro fell more than one percent to 148.38 yen, its lowest level since October 2006.
      
Broad weakness in global shares has helped to cool demand for risky trades, which has benefited the yen after the low-yielding currency for years had been used to pick up assets in higher-yielding currencies in "carry" trades.
      
The euro struggled in the aftermath of the European Commission's report, which also forecast inflation will be much higher because of financial turmoil, soaring commodity prices and housing market shocks.
      
The commission slashed its gross domestic product growth prediction for the euro zone to 1.3 percent from the 1.7 percent predicted in April.
      
The shift in the market's focus toward weakening growth outside of the United States enabled the greenback to brush aside news on Wednesday that Lehman Brothers posted third-quarter losses and failed to announce concrete plans to raise capital.

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European stocks slip by midday as financials weigh

LONDON - European stocks fell by midday on Thursday, as banks slipped on persistent worries about the sector following steep losses at Lehman Brothers in the previous session, while insurers were led down by AXA.

By 1142 GMT, the FTSEurofirst 300 index of top European shares was down 1 percent at 1,136.62 points. It has lost 24.5 percent this year, hammered by recession and inflation fears as well as worries about the impact of the credit market crisis on the financial markets.

Lehman said on Wednesday that it planned to sell a majority stake in its investment management division and spin off commercial real estate assets as the struggling U.S. investment bank fought to raise capital.

"It's going to be an ugly third and fourth quarter for earnings," said Karen Olney, head of European equity strategy at Merrill Lynch. "The market hasn't quite discounted the fall in profit you have in a recession."

French insurer AXA fell 4.3 percent after UBS downgraded the stock to "neutral" from "buy". The DJ Stoxx European insurance index was down 2.5 percent and the banking index lost 2.3 percent.

Germany's Deutsche Postbank fell 4.8 percent amid signs that the country's biggest bank, Deutsche Bank, was about to acquire a minority stake in the retail bank. "Such a deal might limit the upside (for Postbank's share price) ... as the new shareholder structure would limit takeover fantasy," brokerage Equinet said in a note.

Giuseppe Amat, strategist at Lang & Schwarz, said a sharp decline in the euro against the dollar had also been prompting some fund managers to close their short positions in the dollar, resulting in a sell-off of their European stocks.

Britain's FTSE 100 .FTSE was down 1.3 percent, while Germany's DAX .GDAXI and the French CAC 40 .FCHI both lost 1.5 percent.

Miners advanced, with BHP Billiton, Anglo American, Vedanta Resources, Kazakhmys, Xstrata, Antofagasta and Rio Tinto rising between 0.5 and 4.6 percent.

Energy shares also gained. BP was up 0.4 percent, while Total rose 0.6 percent. Shares in Britain's BG Group and Spain's Repsol . were up 4.6 and 0.4 percent respectively after Petrobras said the Iara oil field in Brazil could hold 3-4 billion barrels of recoverable reserves.

Gas producer BG owns 25 percent of the oil block in which Iara is situated. Investors awaited U.S. international trade figures, export and import prices for August as well as weekly jobless claims, due at 1230 GMT.

Dutch bank ING said the import price data would provide a first glimpse of the impact of the drop in the oil price from $150 a barrel in mid-July to just over $100 now.

In the UK, stocks extended losses after Bank of England policymaker David Blanchflower said there would be a deeper than forecast decline in the British economy and front-loaded rises in unemployment.

Sweden's Scania was down 1.9 percent after the FTSE Group announced it was among the companies that will be ejected from the FTSEurofirst 300 index in a quarterly review. Eurasian Natural Resources Corp, up 1.8 percent, is among those that will join the index on Sept. 22.

Italy's Mediaset was down 2.2 percent after the FTSE Group said the company was being relegated from the FTSEurofirst 100 index in the annual review.

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Asian stock market summary

JAPAN
The Nikkei 225 Stock Average ended 2 percent lower at 12,102.50, led by banks after Lehman Brothers Holdings Inc. failed to come up with any solid deals to raise desperately needed capital.
   
Local investors looked past a mild gain on Wall Street overnight amid lingering worries about credit woes and their impact on the U.S. economy. A poor performance by other Asian equities also added to the downbeat mood.

SOUTH KOREA
The Korea Composite Stock Price Index closed 1.48 percent lower at 1,443.24, led by financials on persistent credit worries after Lehman Brothers reported unexpectedly big losses overnight, with heavy programme selling on options and futures expiries adding to volatility.

CHINA
The benchmark Shanghai Composite Index fell 3.34 percent to close at a 21-month low of 2,078.98, led by financial stocks after U.S. investment bank Lehman Brothers unveiled a restructuring plan following a $3.9 billion loss in the third quarter.
   
The Shanghai A-share Index was down 3.34 percent at 2,182.11, and the Shenzhen A-share Index fell 2.13 percent to 602.78.
  
The Shanghai B-share Index was down 3.83 percent at 137.86, and the Shenzhen B-share Index fell 5.53 percent to 330.85.

AUSTRALIA
The benchmark S&P/ASX 200 index fell 91.2 points to close at 4,814.3, as declines in banking shares, shaken by Lehman Brothers' struggle to raise capital, outweighed gains in some energy firms.

TAIWAN
The weighted index closed down 3.19 percent at 6,251.95, as a slump in the Taiwan dollar raised fears of accelerating foreign capital outflows, aggravating existing worries about the fundamental health of the economy.
   
The Taiwan government's plan to halve the securities transaction tax rate to 0.15 percent for six months -- part of a T$180 billion economic stimulus plan announced this morning -- had already been factored in and therefore failed to lift the market.

HONG KONG
The Hang Seng China Enterprises index was down 439.37 points or 4.19 pct at 10,052.03, its lowest close since April 10, 2007

INDIA
The 30-share benchmark Sensitive Index of the Bombay Stock Exchange lost another 338.32 points or 2.31 percent to close at 14,324.29 and the broader 50-share S&P CNX Nifty of the National Stock Exchange dipped almost 110 points or 2.5 percent to 4,290.30.

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Oil prices drop amid falling demand for energy

LONDON - Oil prices fell on Thursday as demand for energy decreased around the world owing to a global economic slowdown.
  
Prices had risen earlier in the day as Hurricane Ike headed toward key energy facilities on the southern U.S. coast and after OPEC on Wednesday reduced output to curb falling prices, analysts said.
   
Brent North Sea crude for delivery in October dropped 56 cents to $98.41 a barrel. New York's main contract, light sweet crude for October, slid 51 cents to $102.07.
   
Concerns about oil demand in a slowing global economy were highlighted by the latest monthly report from the International Energy Agency (IEA), which cut its estimate for global oil demand this year by 100,000 barrels per day and in 2009 by 140,000 bpd.
   
The IEA monthly report, published Wednesday, highlighted shrinking oil demand in North America, saying consumers mainly in the United States are cutting back energy use in response to high prices.
   
The same day, the U.S. Department of Energy said that stockpiles of distillates, which include heating fuel, had dropped by 1.2 million barrels in the week ended Sept. 5. The consensus forecast was for a bigger decline of 2.2 million barrels.
   
Distillates are being watched closely by the market ahead of the northern hemisphere winter. With oil prices falling below $100 per barrel this week, oil producer group OPEC decided to cut production to prevent a further drop, despite an economic crisis in consumer countries.
   
"It looks like they are willing to defend $100 (as a floor)," Mike Wittner, an analyst at Societe Generale, commented following OPEC's decision. Oil prices topped a record $147 in July but have since fallen some 30 percent, dropping below the symbolic $100 mark for the first time in five months on Tuesday.
   
The Organization of Petroleum Exporting Countries reacted to the fall by cutting its daily output by 520,000 bpd. Oil prices had risen in Asian trading on Thursday as Ike strengthened to a Category Two storm in the Gulf of Mexico and headed toward the southern U.S. coast after ravaging Cuba and the Caribbean.
   
In anticipation of Ike, Anglo-Dutch oil giant Shell evacuated personnel from offshore installations. The bulk of U.S. oil refineries are in the Gulf of Mexico.

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