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

Interbank FX's (IBFX) "no dealing desk" business model and proprietary technology seek to provide Forex traders with tight spreads, transparent pricing and instant order execution.  Click here

U.S. Stocks Off At The Start As Auto Rescue Derails

U.S. stocks slid at Friday's start after plans for a rescue of the auto industry fell apart in the Senate, intensifying worries that additional layoffs would deepen the recession.

"Expect a nasty open on stocks today as selling pressure should be heavy. But do expect the White House to back the auto industry," said Tom DiGaloma, head of U.S. Treasury trading at Jefferies & Co.

The last-minute collapse of the rescue sent shares in car makers tumbling, with General Motors Corp. (GM) off 16% and Ford Motor Co. (F) down more than 7.2%. .

The Dow Jones Industrial Average (DJI) shed 139.15 points to 8,425.94, with 29 of its 30 components down early on.

The S&P 500 (SPX)fell 15.12 points to 858.57, with all 10 of its sectors posting early declines, with energy, financials and consumer discretionary shares the hardest hit.

The technology-laden Nasdaq Composite (RIXF) declined 16.66 points to 1,491.22. Early economic data also weighed on equities, with the government reporting a 1.8% drop in retail sales in November. Separately, the Labor Department said U.S. whole prices also declined sharply last month. .

U.S. stocks finished deep in negative territory on Thursday as fears over the future of the bailout plan mounted and amid renewed concerns over the health of financial firms. The Dow Jones Industrial Average closed down 196 points, the S&P 500 lost 25 points and the Nasdaq Composite lost 57 points.

Bank of America Corp. (BAC) late Thursday said it would cut as many as 35,000 jobs during the next three years as it adjusts to the recession and completes its pending acquisition of Merrill Lynch & Co. (MER). .

Also late Thursday Bernard Madoff, former Nasdaq Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, was arrested and charged with securities fraud in what federal prosecutors called a Ponzi scheme that could involve losses of more than $50 billion. .

The dollar declined against the yen, hitting a fresh 13-year low, but was broadly steady versus the euro. The greenback was recently down 1.2% at 90.35 yen.

The price of light crude-oil for January delivery fell sharply, losing $3.4 at $44.58 a barrel in early trade on the New York Mercantile Exchange.

The deluge of industry job cuts spread into the traditionally defensive gambling sector Friday when Las Vegas Sands (LVS) announced it would cut 216 full-time employees from its Las Vegas properties.

International markets were also hit hard by the collapse of the auto industry rescue, with Japan's Nikkei 225 tumbling 5.6% and the French CAC 40 index dropping 5.3%.

...Championship, a trading contest with over $30,000 in prizes! The contest will begin on December 7 at 17:15 EST and end on January 2 at 17:00 EST. Click here

FOREX-U.S. bailout failure pushes dlr/yen to 13-yr low

LONDON - The dollar dived to a 13-year low against the yen on Friday after the U.S. Senate failed to agree a bailout for U.S. automakers, cranking up risk aversion and triggering demand for the low-yielding yen.

That same deleveraging, sharp decline in stocks and hefty emerging market selloff, however, supported the dollar against most other currencies, lifting it up from a seven-week low against the euro.

U.S. talks on a $14 billion rescue package for the stricken sector collapsed late on Thursday, exacerbating global recession fears and prompting an exodus from risky assets such as equities and emerging markets.

The dollar tumbled to 88.1 yen according to electronic trading platform EBS, but trimmed losses as the pair's break through the closely watched 90 yen region had spurred some speculation that Japanese authorities may consider acting to stem further yen strength.

Analysts said that demand to pull out of risky positions remained high, which battered higher-yielding currencies like the Australian and New Zealand dollars against the yen. They added that the yen would remain a big beneficiary of such moves.

"The risk aversion trade is the most powerful force these days, and this has led to a drastic unwind in carry trade and repatriation flows back into Japan," said Marco Annunziata, global chief economist at UniCredit in London. "This will continue, at least in the short-term."

At 1148 GMT the dollar traded 1.5 percent lower on the day at 90.33 yen. The euro fell 1.7 percent to 119.95 yen, while the Australian dollar tumbled 3.7 percent to 59.08 yen and the New Zealand currency fell to 48.15 yen, closing in on a seven-year low hit earlier in the month.

The euro stumbled 0.3 percent to $1.3325, while sterling traded 0.7 percent lower at $1.4925. The Australian and New Zealand currencies also fell against the dollar.

But dollar gains against those currencies were limited as some in the market speculate that repatriation flows in the U.S. currency may be drying up, while traders take profits on the dollar's dramatic gains in recent months. Earlier in the day, the euro matched a seven-week high of $1.3407 on EBS. It has gained 4.5 percent on the dollar this week, putting it on track for its biggest percentage gain since the single currency was introduced in 1999.

Against a basket of currencies, the dollar is set for its worst weekly performance since 1995, last down 3.6 percent on the week.

The yen's jump on Friday increased speculation that Japanese authorities may consider capping yen strength -- which hurts the nation's export sector, a big driver of the economy. But Japanese Finance Minister Shoichi Nakagawa told reporters after the yen's rally that he was not considering such a possibility, while also noting that he was watching currency markets with great interest and that big movements were undesirable.

Market participants question the success of any intervention, with many analysts speculating that Japan would have to conduct yen-selling operations on its own, without the help of other countries, given a wide trend of broad yen strength.

"The chances of success of intervention will be limited against the background of still high risk aversion, but this will not stop Japanese officials from likely stepping up their rhetoric over coming days," Calyon analysts said in a research note.

Traders awaited U.S. data due out later in the day, which includes November producer prices and retail sales. Weak readings may further increase speculation of a big interest rate cut by the Federal Reserve next week. Fed funds rates futures are pricing in an 84 percent probability the central bank will cut its 1.0 percent target rate by 75 basis points to 0.25 percent.

Interbank FX's (IBFX) "no dealing desk" business model and proprietary technology seek to provide Forex traders with tight spreads, transparent pricing and instant order execution. Our library of free trading tools and award-winning customer service support are helping our customers compete in the largest financial market in the world.Click here

Europe shares fall on bank fears, auto deal failure

LONDON - European shares fell by midday on Friday, led by banks which slipped after JP Morgan said it had had a "terrible" November and December, and auto stocks which fell after rescue talks for U.S. carmakers collapsed.

At 1136 GMT the FTSEurofirst 300 index of top European shares was down 4.8 percent at 812.92 points.The index has fallen more than 46 percent this year, hurt by a credit crisis which has helped push several major economies into recession.

Banks fell heavily after comments from the chief executive of JPMorgan Chase & Co."They [J.P. Morgan] are speaking on behalf of the industry," said Brewin Dolphin chief strategist Mike Lenhoff.

News that Bank of America Corp plans to eliminate 30,000 to 35,000 jobs over three years also added to investor nerves, while British bank HBOS plunged 18 percent after bad debts and other charges jumped to 8 billion pounds.

BNP Paribas, Credit Suisse, Barclays, HSBC and UBS slipped between 6.9 and 12.7 percent. Lloyds, which plans to take over HBOS, also tumbled 18 percent. Although the banking sector took the most points off the index, all 38 sectors were in the red.

Auto groups were also major fallers after Senate negotiators failed to reach a compromise bailout deal , effectively killing any chance of congressional action this year. "It's pretty serious stuff when Congress decides they want to put a hold on providing a bailout for the big car manufacturers," said Lenhoff.

"When push comes to shove, we're talking about millions of jobs. That's people without incomes to spend. All sorts of industries are affected by this."

Heino Ruland, strategist at FrankfurtFinanz, said: "If one of the big auto companies goes bust in the U.S., this could see a collapse in the entire supply chain. Groups like BMW, Honda and Nissan rely on this supply chain and they would suffer."

BMW, Daimler, Renault, Fiat , Peugeot and Porsche were down 5.3 to 8.1 percent. Energy stocks were sharply lower, with crude futures down 5.9 percent at $45.19 a barrel, giving up most of Thursday's gain. BG Group, BP, Total and ENI were down between 4.5 and 6.8 percent.

Royal Dutch Shell fell 6.6 percent after the company said its Dutch pension fund had fallen into deficit and contributions would have to increase. Alcatel-Lucent slipped 9.3 percent after it unveiled a plan to reduce the company's break-even point by 1 billion euros ($1.3 billion) per year in both 2009 and 2010.

Across Europe, the FTSE 100 index was down 3.8 percent, Germany's DAX was 4.7 percent lower and France's CAC 40 was down 5.3 percent.

Later in the session, all eyes will be on U.S. November retail sales due out at 1330 GMT. Economists in a Reuters survey expect a 1.9 percent fall compared with a 2.8 percent drop in October.

The Michigan December Consumer Sentiment Survey due at 1455 GMT is expected to show a reading of 54.8 compared with 55.3 in the last report.

The U.S. Federal Reserve is set to cut rates next week, perhaps by 50 basis points to an unprecedented 0.5 percent, as part of its battle against recession. Lenhoff said: "It's incidental, considering the other things that are going on."

Open a free $50k practice account with FOREX.com to receive your complementary Currency Trading for Dummies: Getting Started Edition eBook.  This nuts and bolts guide gives you a step-by-step action plan for understanding and trading the Forex market. Get started now!

Auto Stocks Plunge, Dragging Asia To Broad-based Losses

A week of solid gains ended on a sour note for Asian markets Friday as stocks got broadly hammered as hopes for a U.S. government bailout of the Big Three automakers collapsed.

Regional automakers -- such as Toyota Motor Corp., Honda Motor Co. and Hyundai Motor Co., all of which depend heavily on the U.S. market -- plunged in afternoon trading.

Meanwhile, the dollar fell against the Japanese yen in Tokyo trading, hitting a 13-year low of 88.02 yen, before rebounding after news broke on Capitol Hill that the Senate had failed to reach a compromise on the proposed auto-loan package, which had cleared the House of Representatives Wednesday night.

"I think there'll be a lot of knee-jerk reactions on the news," said Andrew Sullivan, a sales trader at Main First Securities in Hong Kong. "It just indicates nervousness and the lack of clarity."

In foreign-exchange action, the dollar stood at 90.43 yen in late dealings in Tokyo, compared with 91.80 yen on Thursday. The euro changed hands at 119.74 yen versus 121.45 yen.

Shares of Japanese exporters suffered as a result of the weakness in the dollar. Concerns that stocks on Wall Street could drop sharply exerted marked selling pressure on Asian equities. U.S. stocks futures indicated a sharp pullback at the Friday open.

Energy traders also took their cue from the latest doings in Washington. January crude-oil futures, which had jumped 10.2% on the New York Mercantile Exchange overnight, lost as much as $1.58 to $46.40 a barrel in electronic trading recently.

To cap off the week, Tokyo's Nikkei 225 Average slumped 5.6% to 8,235.87, snapping a four-session winning streak and narrowing weekly gains to 4%. The broader Topix Index gave up 4.2% to 813.37.

Analysts said Friday's action could signal that Asian markets have topped out after a multi-week rise from lows in October. "We'll move lower from here," said Sean Darby, a strategist with Nomura International. "I don't think there's much incentive for people, especially foreign investors, to put money in."

Bearishness prevailed across Asia at week's end. South Korea's Kospi, which had risen for five straight sessions, tumbled 4.4% to 1,103.82, leaving the benchmark's weekly gain at 7.4%.

Australia's S&P/ASX 200 skidded 2.4% to 3,510.40, while New Zealand's NZX 50 index dipped 1.8% to 2,676.95.

Taiwan's Taiex gave up 3.7% to 4,481.27. The retreat came in spite of a reduction of three-quarters of a percentage point in interest rates, to 2%, ordered by the Taiwanese central bank on Thursday.

In afternoon trading, Singapore's Straits Times Index dropped 3.5% to 1,730.75, with India's Sensitive Index faring better, slipping just 0.3% to 9,616.10.

China's Shanghai Composite gave up 3.8% to 1,954.21. Official data released earlier Friday showed retail sales on the mainland last month rose 20.8% from November 2007, a growth easing from a 22% increase in October. In Hong Kong, the Hang Seng Index plunged 5.5% to 14,758.39 but still ended the week with a gain of 6.6%, while the Hang Seng China Enterprises Index shed 6.8% to 7,911.76.

"We're seeing a substantial correction as we've seen a substantial runup in the past two weeks," said Steve Cheng, associate director at Shenyin Wanguo in Hong Kong.

In Tokyo, shares of Honda (HMC) plunged 12.5% and Toyota (TM) slumped 10.1%. Other automakers -- Isuzu Motors (ISUZY), Mazda Motor Corp. (MZDAY), Nissan Motor Co. (NSANY) and Suzuki Motor Corp. (7269.TO) --followed suit, plunging more than 10%.

In Seoul, shares of Hyundai Motor Co. (HYMLF) gave up 9.3% and Kia Motors Corp. (KIMTF) lost 9.1%. Also on the move, shares of Elpida Memory Inc. (ELPDF) lost 11.4%. The company announced early redemption of convertible bonds worth 50 billion yen ($555 million) that the chipmaker issued last month.

Regional financials also lost heavily, with Tokyo-listed shares of Citigroup Inc. (C) tumbling 12.7% and Nomura Holdings Inc. (NMR) losing 7.2%.

Market heavyweight   Holdings (HBC) fell 5.7% in Hong Kong. Shares of KB Financial Group (KB) sank 14.9% in Seoul, while Oversea-Chinese Banking Corp. shed 3.9% in Singapore by late afternoon.

VantagePoint's market forecasts are nearly 80% accurate. Take a look at actual forecasts, become eligible for a Complimentary VantagePoint Market ($750 value!) and see the difference they will make. Click here to see two recent forecasts now.

PRECIOUS-Gold off lows on dollar, car deal failure hurts

LONDON - Gold lifted from lows on Friday as the dollar softened against the euro, but stayed weaker after news that a $14 billion plan to bail out ailing U.S. carmakers has failed sparked selling of equities and commodities.

A firmer euro against the dollar was helping the precious metal, analysts said. However, platinum and palladium, which rely on carmakers for a large portion of demand for the metal, remain weak.

Spot gold dipped to a low of $807.00 an ounce and was quoted at $814.30/816.30 an ounce at 1008 GMT, down from $818.35 an ounce on Thursday.

"With the start of trading in Europe, the euro recovered and is moving back towards the highs made early in Asian trading," Dresdner Kleinwort analyst Peter Fertig said. "This is giving gold some support." "Also, after the plunge in stock markets and crude oil, there has been a bit of a rebound in the first hour of trading in Europe. This is also supportive," he added.

Gold earlier slipped along with other commodities such as oil and base metals after the failure of the plan to aid carmakers. The U.S. House of Representatives had agreed to the bailout but the plan could not get through the Senate.

The bailout's failure, for this year at least, raised fears of an industry collapse that could threaten countless jobs, with uncertainty filtering through to the financial markets, sending investors fleeing from risky assets. "Everything is lower overnight, the platinum group metals in particular, on the news that the Senate had thrown out the car company bill," Commerzbank trader Rory McVeigh said.

Oil prices fell by more than 4 percent after the news, and industrial metals tumbled, with copper and nickel prices sliding by more than 5 percent each.

Equity markets also fell in Asia and slumped in early European trade. The FTSE 100 fell 3.4 percent, German's DAX slipped 3.9 percent, and France's CAC 40 was down 4.3 percent.

Falling equities may continue to pressure gold, which can be sold to raise liquidity to cover losses on other markets, analysts say. "The panic that could set into equity markets might see demand for U.S. Treasuries rise, and therefore some dollar appreciation," Standard Bank analyst Walter de Wet said.

A firmer dollar tends to weigh on gold, which is often bought as an alternative investment to the U.S. currency. The dollar firmed against the euro in early European trade, despite hitting a 13-year low against the yen as the failure of the U.S. carmaker bailout sent investors scurrying to the perceived safety of the Japanese currency.

But it later slipped against the euro, supporting gold. Platinum fell nearly 3 percent and palladium lost just under 4 as traders worried about the outlook for demand from carmakers, who consume about half of global supply of the two metals each year.

Troubles in the automotive sector have already knocked platinum and palladium down some 65 percent and 70 percent respectively from this year's highs reached in March.

Spot platinum fell to a session low of $797.50 an ounce, and was later at $809/829 an ounce against $826. Palladium was at $170/178 an ounce against $177. Spot silver was at $10.15/10.23 an ounce, down from $10.30.

Track the performance of your favoured currency against the top 20 global currencies. Click here.