US & World Daily Markets Financial Briefing 12-01-2009

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US STOCKS-Wall St falls on profit worry, banks and Alcoa
   
NEW YORK  - U.S. stocks fell on Monday,   hurt by diminishing appetite for riskier assets due to fears  that fourth-quarter earnings might spotlight further deterioration in the economy. Concerns about the prospect for more financial sector  losses stemming from the mortgage slump added to the negative  tone, with shares of Citigroup sliding nearly 8 percent,  and JPMorgan Chase off more than 3 percent.
   
According to Thomson Reuters estimates, fourth-quarter S&P  500 earnings should decline 15.1 percent from a year earlier. A sharp slide in oil prices was another headwind for the  market as it dragged shares of energy companies, including  Exxon Mobil Corp, lower.
   
The caution was tempered, however, by hopes that Congress  will push to have the remaining $350 billion of the $700  billion financial rescue plan released by the time U.S.  President-elect Barack Obama is sworn in on Jan. 20.
  
Alcoa Inc is scheduled to kick off the earnings  season when it posts fourth-quarter results after the bell.  Deutsche Bank recommended a "sell" on the aluminum producer,  sending the stock down 9.5 percent to $9.78 on the New York  Stock Exchange.
   
The slide in Citigroup shares followed news that the embattled U.S. bank is nearing a deal to sell a controlling  stake in its Smith Barney retail brokerage business to Morgan  Stanley to raise cash.
   
"The perception is that this is a desperate measure taken  by a firm in turmoil to try to throw itself a lifeline," said  Jack Ablin, chief investment officer at Harris Private Bank in  Chicago. "Investors don't see catalysts. There's a real worry  that earnings estimates are just too optimistic."
   
A joint venture deal would lead to Morgan Stanley paying  Citigroup about $2.5 billion to $3 billion in cash, a source  familiar with the situation said. For more see.
  
The Dow Jones industrial average fell 61.49 points,  or 0.72 percent, to 8,537.69. The Standard & Poor's 500 Index  slid 9.75 points, or 1.10 percent, to 880.60. The Nasdaq  Composite Index shed 13.22 points, or 0.84 percent, to  1,558.37.
   
U.S. front-month crude fell $2.62 to $38.21 a  barrel. JPMorgan shares declined 3.1 percent to $25.15 on the NYSE,  as shares of Citigroup tumbled to $6.22. The S&P financial  index was down 1.8 percent. On Nasdaq, shares of Apple Inc were among the top  drags, falling more than 1 percent to $89.63. Shares of  Harley-Davidson slid 10.5 percent to $14.32 after  Goldman Sachs cut its rating on the stock to "sell."
   
Shares of Advanced Medical Optics surged 145.3  percent to $21.72 after the company agreed to be bought by  Abbott Labs for nearly $1.4 billion.. As the economic picture worsens, Obama has vowed to  restructure Washington's financial rescue plan to save more  U.S. families from home foreclosures.
   
Obama's aides have been in discussions with the White House  over whether President George W. Bush should ask Congress for  permission to use the remainder of the $700 billion rescue  package aimed at stabilizing the financial system.
   
Obama has not asked the White House to request the  remaining money, but it would do so if asked, Bush said on  Monday.
   
Friday's data showing that the U.S. unemployment rate  surged to its highest in 16 years in December sent Wall Street  tumbling, but the benchmark S&P 500 index remains 16 percent  higher since its Nov. 21 bear market intraday low.

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FOREX-Euro down on ECB rate cut talk, yen broadly up

LONDON - The euro fell on Monday, hitting a 1-month low against a broadly firmer yen as investors shunned riskier assets, while it was also pressured on expectations that euro zone interest rates will be cut further later in the week.

European shares retreated nearly 1 percent on the day, following a rout in Asian shares after Friday's U.S. payroll data showed the world's largest economy lost more than one million jobs in the final two months of the year.

Investors sought the low-yielding yen as they shunned riskier assets, boosting the Japanese currency to a 3-week high against the dollar as well. "Risk appetite is nowhere to be seen," said Christian Lawrence, currency strategist at RBC Capital Markets.

By 1159 GMT, the euro fell 0.7 percent against the yen to 120.40 yen, having earlier hit a low of around 120.09 yen, while it lost 0.2 percent against the dollar to $1.3415. The higher-yielding Australian dollar lost 2.5 percent versus the U.S. dollar to hit a low of $0.6833 and fell 2.2 percent against the yen at 61.58 yen, weighed down by risk aversion and lower commodity prices.

The U.S. dollar also tumbled to a 3-week low against the yen at 89.62 yen. Sterling was sharply lower as it has also been viewed as a high-risk currency, dropping by 1.3 percent against the dollar to below the $1.50 mark. The pound also fell 1.5 percent against the yen at 134.34 yen.

"I still see the yen attracting a lot of safe haven money and equities look like we may take another look at the lows soon," IdeaGlobal strategist Maurice Pomery said in a note.

Data last week showed factory output collapsing across Europe, raising the prospect for a sharp economic downturn and increasing expectations for a large rate cut when the European Central Bank meets to decide policy on Thursday.

Such sentiment was echoed by IMF Managing Director Dominique Strauss-Kahn, who said in a media interview on Monday that Europe was "behind the curve" on taking economic stimulus measures and he expected interest rates to decrease further in Europe.

Markets expect the ECB to cut key interest rates by 50 basis points to 2.0 percent, according to a recent Reuters poll. Interest rate futures on Monday showed they expected a 75 basis point cut, and some chancing a full one percentage point move ECBWATCH.

"Going into the meeting, the euro will be under pressure as the market expects the ECB will cut ... with economic data arguing in favour of aggressive easing," said BTM-UFJ currency economist Lee Hardman.

Among other news, the Russian central bank staged the latest in a series of mini-devaluations of its currency as it allowed the rouble to weaken for the second day running.

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Commodities dent European shares on economy fears

LONDON - European shares were lower midday on Monday, with commodity stocks the biggest fallers on the index as crude oil dipped below $40 a barrel on concerns about the global economic slowdown.

By 1149 GMT, the FTSEurofirst 300 index of top European shares was down 0.9 percent at 859.01 points, on course for its fourth day of retreat.

"There are fears of a further slump in economic growth, with weak euro zone economic sentiment figures last week and poor labour market data from the U.S. on Friday," said Heino Ruland, strategist at FrankfurtFinanza. "I do not think we have seen the bottom yet; investors are now waiting for Alcoa results coming out after the bell."

Energy stocks were the biggest fallers on the index as crude fell 5.2 percent to below $40 a barrel, dragged down by widespread evidence that deepening recession is reducing global energy consumption.

BG Group, BP, Royal Dutch Shell and Total were 0.3-1.9 percent lower. Miners were in the doldrums. Rio Tinto slipped 2.9 percent after the group said it had indefinitely postponed the $2.15 billion expansion of its iron ore mine in Corumba, Brazil, as world steel production drops.

Antofagasta was down 4.9 percent as RBS downgraded the group to "hold" from "buy". "What we see now is some kind of disillusion in the market in the sense that the focus is now on the corporate earnings season that lies ahead," said Joerg Rahn, senior economist at MM Warburg.

"There are concerns that company outlooks for 2009 and 2010 could be worse than the market has priced in so far." The pharmaceutical sector also weighed heavily on the index. Roche lost 2.6 percent on talk, dismissed by the group, that it might sacrifice dividend payouts to help fund a sweetened offer for the remainder of U.S. biotech giant Genentech.

Across Europe, the FTSE 100 index was down 0.5 percent, Germany's DAX was 0.3 percent lower, and France's CAC 40 was down 0.2 percent.

The banking sector was the biggest gainer on the index. "Financials are being pushed higher because of rumours Citigroup will sell a stake of its Smith Barney retail brokerage business to Morgan Stanley," Ruland said.

Credit Agricole was up 1.4 percent, while HSBC gained 1.8 percent. In the UK, Royal Bank of Scotland was 6.2 percent higher on a Sunday Times report that private equity firms Apollo Management and BC Partners had joined up with former Norwich Union boss Patrick Snowball to mount a late bid for the group's insurance division.

A spokesman for RBS declined to comment, while Apollo and BC Partners could not immediately be reached for comment.

UBS, however, lost 5.7 percent after weekend news reports the Swiss bank could face heavy losses for the fourth quarter and a large fine following a U.S. tax investigation.

A UBS spokeswoman declined to comment at the weekend on the fourth-quarter result and called the report about an expected fine "pure speculation". In the auto sector, BMW rose 1.9 percent as traders cited market talk of potential interest from rival Daimler, the maker of Mercedes-Benz cars.

Daimler, whose shares eased 0.1 percent, and BMW were not immediately available for comment. Peugeot gained 6.7 percent after Credit Suisse upgraded the carmaker to "outperform" from "underperform", Goldman Sachs raised its rating to "neutral" from "sell", and ING started coverage with a "buy" rating.

Among other movers, Germany's RWE slipped 1.1 percent. Two sources in the finance industry said Europe's fifth-largest utility had agreed to buy the unregulated assets of Dutch peer Essent for just under 10 billion euros ($13.4 billion). RWE and Essent declined to comment.

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HK shares fall for fifth day on grim economic news

HONG KONG - Hong Kong shares fell 2.8 percent on Monday, sagging to a five-week closing low, as grim U.S. unemployment data added to worries that global demand for Chinese exports was nowhere near to recovering.

The Hong Kong market has retreated for five straight sessions, matching a similar selloff in October, when the benchmark Hang Seng index plumbed its 2008 low.

"Investors had started to believe that corporate earnings downgrades may have been discounted by last year's steep fall in share prices," said Howard Gorges, vice chairman with South China Brokerage. "But now the feeling is that the fall may be deeper while the recovery will take longer."

The Hang Seng Index ended down 406.44 points at 13,971.00 after opening 0.5 percent lower. Mainboard turnover edged up to HK$46.3 billion ($5.9 billion) from HK$45.2 billion on Friday but investors remained cautious ahead of U.S. retail sales data later in the week.

Shares in China Eastern Airlines, one of the country's big three carriers, slid 7.1 percent to HK$1.04 after the airline said it would report a large loss for 2008 because of slumping traffic and losses on fuel price hedging contracts.

The airline estimated it would suffer a loss of about 6.2 billion yuan ($908 million) because it had marked down the value of its fuel hedging contracts after the unexpectedly steep drop of global oil prices late last year.

Bigger rival Air China plunged 9.2 percent while China Southern Airlines gave up 6.7 percent, dodged by worries of shrinking traffic amid the global downturn.

Shares in Asia's biggest oil & gas producer PetroChina dropped 4.8 percent as grim U.S. economic data on Friday heightened fears that energy demand would fall this year.

China is expected to cut refined product prices by mid-2009, said Deutsche Bank, following an 18 percent reduction in gasoline prices announced in December.

The impending price cut will push Petrochina to lower its average selling price, driving earnings cuts of 9 percent for 2009, said analysts with the European brokerage.

Coal stocks fell after data showed an increase in stockpiles at power plants even as cold weather sweeps through China. China Shenhua dropped 4.7 percent while smaller rival China Coal Energy gave up 7.5 percent.

Other commodity counters also tanked on the weak global demand outlook with Aluminum Corp of China shrinking 8 percent and bulk shipper China Shipping Development plunging 13.3 percent. "China may be planning an economic recovery with all its stimulus measures but the situation will be bad as long as exports continue to fall," said Castor Pang, strategist with Sun Hung Kai Financial.

China's exports and imports are expected to have fallen for a second consecutive month in December, according to media reports on Monday. "China enterprises are seen facing a serious problem this year with their profitability under threat," he said.

The China Enterprises Index of top locally listed mainland Chinese firms .HSCE fell 5.3 percent to 7,311.23. Macau casino stocks pulled back from a string of sharp gains as investors who bought the stocks, on hopes of easier travel restrictions for mainland visitors in the near term, were disappointed.

Galaxy Entertainment, which soared nearly 90 percent in the last month, slumped 19.4 percent after a weekend visit to the former Portuguese colony by Chinese Vice President Xi Jinping did not yield any announcements on visa restrictions.

Stringent travel curbs imposed by the Chinese government coupled with the effects of a protracted global recession have strangled growth in the once-booming gambling haven. Most of the gamblers who visit Macau are Chinese residents.

Melco International Development, controlled by the son of gambling tycoon Stanley Ho, dropped 12.4 percent while Ho's SJM Holdings fell 10.2 percent.

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PRECIOUS-Gold falls 1 pct on firmer dollar, weak demand

LONDON - Gold slipped 1 percent on Monday as oil dropped and the euro extended losses against the dollar, while physical demand was seen softening. "We suspect that further dollar strength might put gold under pressure over the coming week," said analyst David Thurtell at Citi.

Investors awaited the European Central Bank's policy meeting on Thursday, which could set the direction of the dollar amid expectations of more rate cuts keeping the euro on the defensive.  "The euro is likely to fall as the European Central Bank cuts rates to stem the decline in the Euro zone economy," Citi's Thurtell said.

Gold was trading at $844.60 an ounce by 1025 GMT, down 1 percent from $853.60 in New York late on Friday.

Thurtell said gold was supported at around $835. But physical demand was seen softening after holding firm in the normally very strong fourth quarter. "It tends to tail out in the first quarter ... the market over the next few weeks will probably focus on weaker demand," said analyst Michael Widmer at BNP Paribas.

Gold has bounced more than 20 percent since tumbling to a 13-month low around $680 in late October. Bullion struck a record $1,030.80 last March.

Oil dropped below $39 a barrel on persistent worries about falling demand following Friday's dismal U.S. payrolls report, which showed 1.1 million jobs lost since November and the highest unemployment rate since 1993. "Gold came off in line with the stronger dollar and the weaker oil price," a trader said, adding trading was calm on Monday.

The euro fell to $1.3381 amid talk of an aggressive cut in eurozone interest rates later this week, with speculation rife the central bank will cut its key lending rate by 50 basis points to 2 percent.

On COMEX, speculative gold players boosted their net long positions to 133,604 at Jan. 6, up from 125,961 net longs at Dec. 30, Commodity Futures Trading Commission data showed.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD, said it held 787.60 tonnes of gold as of Jan. 9, down 0.28 tonnes from a record 787.88 tonnes on Jan. 7.

Holdings in the trust, which issues securities backed by physical stocks of gold, began climbing again in December after poor prospects for the global economy ignited demand for bullion as a safe-haven asset.

Platinum was trading at $989 an ounce, down from $992.50 in New York on Friday. Silver was at $11.09, from $11.24, and palladium was unchanged at $191. New York gold futures GCZ9 fell $2.8 an ounce to $859.

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