US & World Daily Markets Financial Briefing 25-09-2008

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US STOCKS-Wall Street opens higher on bailout hope

NEW YORK - U.S. stocks rose at the open on Thursday as investors bet that Congress might be close to agreeing to a deal on a $700 billion bailout for the financial sector.

The Dow Jones industrial average .DJI was up 97.89 points, or 0.90 percent, at 10,923.06. The Standard & Poor's 500 Index .SPX was up 8.31 points, or 0.70 percent, at 1,194.18. The Nasdaq Composite Index .IXIC was up 15.01 points, or 0.70 percent, at 2,170.69.

US weekly jobless claims up 32,000 to 493,000, highest since September 2001

WASHINGTON - The effects of Hurricanes Gustav and Ike pushed the number of people filing new claims for unemployment insurance to the highest level since the period just after the attacks of September 11, 2001, the Labor Department said today.
   
The number of first-time claims filed in the week ending September 20 rose 32,000 to 493,000, the highest level seen since the week of September 29, 2001.
  
The four-week moving average for initial claims, which tends to smooth out fluctuations in weekly data, rose by 16,000 to 462,500. Many economists see claims above 400,000 as a possible signal of recession.
   
Meanwhile, the number of people continuing to receive unemployment insurance in the week ending September 13 rose by 63,000 to 3.542 mln, the highest level since October 2003.
   
The four-week moving average for continuing unemployment claims increased by 28,250 to 3.489 mln, also the highest level seen since October 2003. The department said the effects of Hurricanes Gustav and Ike added about 50,000 claims to the total of first-time claims.

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LONDON - The dollar fell against a basket of currencies on Thursday as investors continued to fret about whether political wrangling will delay approval of the $700 billion U.S. package to mop up bad bank debt. After two days of congressional testimonies, U.S. lawmakers are inching towards approving the deal designed to help rescue the beleaguered U.S. financial system.

Worries remain, however, about how successful the deal will be in tackling the current crisis, while major concerns persist about the substantial impact on U.S. government finances. "In general the market tendency is to believe that the bailout deal will get through, albeit probably in a reduced form," UBS currency analyst Geoffrey Yu said.

"The market is in a wait and see attitude. No fresh risk is being taken on and investors are staying away from the dollar, but if the bailout goes through then they may increase risk a bit," he said.

At 1106 GMT, the euro was up 0.4 percent against the dollar at $1.4666, while the dollar fell 0.3 percent against a basket of currencies to 76.769 .DXY. President George W. Bush will meet Republican and Democratic leaders at 1955 GMT to hammer out the details of the rescue plan, the White House said.

On Wednesday, in an attempt to garner public support for the package, Bush warned the United States was in the middle of a serious financial crisis that could push the economy into recession if the government did not act, but he offered few details about the makeup of the emerging deal.

European stock markets rose on hopes the U.S. deal would go through fairly soon, but later pared gains on an outlook warning from General Electric. Heightened risk aversion was reflected via a well-bid yen, while jammed money markets showed no sign of letting up.

The interbank cost of borrowing three month dollars, euros and sterling rose further, according to the British Bankers Association's latest daily fixing "Money markets show no sign of easing up any time soon and this is filtering through, with investors going into yen, Swiss francs and gold," Yu at UBS said.

The market's focus remains firmly on the U.S. rescue deal, leaving economic fundamentals to the side, even as the euro zone economy looks to be sliding quickly into recession. The latest GfK consumer sentiment indicator for Germany Thursday unexpectedly showed some improvement, but the figures provided scant comfort after Wednesday's closely-watched German Ifo survey for September slumped sharply.

The GfK market research group also warned that the latest bout of financial market turmoil has "significantly" increased the risk of recession. "Let's not forget the euro zone is moving into recession, it is a very severe situation we're currently facing here," said Michael Klawitter, currency strategist at Dresdner Kleinwort in Frankfurt.

Against the yen, the dollar slipped 0.3 percent to 106.26 yen, despite Japanese data earlier showing the country's trade balance swung into deficit in August for the first time since January as exports slowed and import costs rose.

The euro was little changed versus the yen at 155.34 yen  Later in the session, U.S. durable goods data, new home sales and weekly jobless claims will be closely watched.

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Europe stocks higher as insurers, banks gain

LONDON - European shares rose early on Thursday, led by banks and insurers and tracking gains in U.S. index futures on hopes for an emergency meeting to hammer out details of a rescue plan for the financial sector.

By 0910 GMT, the FTSEurofirst 300 index of top European shares was up 1.4 percent at 1,116.81 points in choppy trade, rebounding from a low of 1,100.56. The index has fallen nearly 27 percent this year.

Insurers were among the top gainers in Europe after AXA Chief Executive Henri de Castries told Europe 1 radio that the current crisis offers the group opportunities to strengthen its market position. Axa was 3.3 percent higher.

Swiss Re was 3.1 percent higher after the group said its investment portfolio remains sound despite tough financial markets and reaffirmed its targets as additional writedowns were lower many had expected.

Banks were stronger, with Royal Bank of Scotland gaining 3.5 percent and UBS adding 4.3 percent. Uncertainty continued in the banking sector as investors grew anxious about when the $700 billion rescue plan for the U.S. financial sector will be approved by Congress.

"There is still uncertainty about U.S. Treasury's bail out phase. There needs to be quick action, it is important that investors know what is going to be done about it as the alternatives are too dire," said Bernard McAlinden, market strategist at NCB Stockbrokers.

An emergency meeting has been called for Thursday by U.S. President George Bush to hammer out details. "That (the meeting) is the key to make things happen. There is great value in the market. In the U.K. the dividend yield has exceeded the yield on gilts and value is emerging as well in Europe," said Mike Lenhoff, strategist at Brewin Dolphin.

"What is lacking is the confidence. The bail out could help provide it - that the fundamentals are being addressed," added Lenhoff.

Across Europe, the FTSE 100 index was ahead 0.6 percent, Germany's DAX was up 1.3 percent and France's CAC 40 was 1.3 percent higher.

Energy stocks slipped as crude CLc1 fell back 1.1 percent to $104.57. Analysts said that evidence of slowing demand in the United States, the world's largest energy consumer, and lingering uncertainty over the bank bailout plan, will probably keep gains in check.

BG Group, BP, Royal Dutch Shell and Total were down between 0.6-1 percent. Miners were mixed. Anglo American rose 2.8 percent, while Eurasian Natural Resources fell 3.3 percent and Lonmin lost 1.4 percent.

The pharmaceutical sector also performed well as investors decided to take a defensive stance. Sanofi-Aventis, Novartis and GlaxoSmithKline were trading between 0.4-1.7 percent higher.

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Asian stock market summary

JAPAN
The Nikkei 225 Stock Average closed down 0.9 percent at 12,006.53, as investors grew uncertain about the fate of the proposed $700 billion U.S. government bank rescue plan.
   
In addition, there was selling pressure from investors who own stocks in companies closing their accounts for the first half to Sept 30 and are losing their rights to receive dividends.
   
Sectors that offer high dividends such as shipping, trading and oil producers led the falls throughout the session.
   
The broader Topix shed 1.2 percent to close at 1,153.95.

SOUTH KOREA
The Korea Composite Stock Price Index ended 0.38 percent higher at 1,501.63 led by exporters, who were also helped by weakness in the won currency.
   
The gain was also helped by growing optimism over U.S. Congress approving a bailout package for the financial sector.

AUSTRALIA
The benchmark S&P/ASX 200 index finished down 1.1 percent at 4,927.4, as banks weakened on questions about whether the U.S. bank bailout plan would get through Congress and as big miners slipped on worries about slowing Chinese growth.

CHINA
The benchmark Shanghai Composite Index closed up 3.64 percent at 2,297.50, after stake purchase rules for major shareholders were eased in another bid to prop up the markets.
   
Brokerage firms surged on hopes that margin trading will be given the go-ahead soon. Most blue chips, particularly oil engineering and shipping firms, rose sharply on hopes that their state-run parents will buy their shares on the open market.
  
The Shanghai A-share Index rose 3.64 percent to 2,412.91, and the Shenzhen A-share Index added 3.13 percent to 638.45. The Shanghai B-share Index rose 3.37 percent to 131.04, and the Shenzhen B-share Index was up 3.99 percent at 306.72.

TAIWAN
The weighted index closed down 1.17 percent at 6,060.83, in thin turnover amid uncertainty over the US government's $700 billion financial sector bailout plan, which is still being debated by lawmakers.
   
While Taiwan government-related funds apparently stepped in to pull the market out of an early dive in response to overnight weakness on Wall Street, profit-takers soon got the upper hand and dragged the market to a lower finish.
   
Financial firms remained under pressure due to fears that they may have to further write down their exposure to US mortgage-related securities and other derivatives products.

HONG KONG
The benchmark Hang Seng Index unofficially closed down 0.2 percent or 41.23 points at 18,920.76 after climbing to 19,248.72 earlier.

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Oil falls on bailout concerns, demand

LONDON - Oil fell on Thursday on lingering uncertainty about the proposed U.S. $700 billion bank bailout plan plus further evidence of a slump in oil demand in top consumer nations.

U.S. crude CLc1 traded down $1.62 to $104.11 a barrel by 1205 GMT, adding to losses of 88 cents on Wednesday. London Brent crude LCOc1 fell $1.67 to $100.78.

Congress looked close to reaching a deal on the rescue package to tackle the financial crisis and President George W. Bush has called an emergency meeting to hammer out details.

Even if the bailout is passed, investors were unsure how that would prevent the U.S. economy from slowing further after this month's crisis led to the collapse of Lehman Brothers and the bailout of Fannie Mae, Freddie Mac and AIG.

"Until the bailout proposal becomes law, investors will remain reluctant to take big positions in a number of commodity complexes," said Edward Meir, analyst at MF Global, in a report.

The turmoil in financial markets has come on top of slowing oil demand in the United States and other developed economies, which has helped drag crude down from a peak of $147.27 struck in July. "Demand could be a factor but I think macro concerns are really what's moving prices," said Helen Henton, head of commodities research at Standard Chartered.

A U.S. government report released on Wednesday showed demand in the top oil consuming nation over the past four weeks running 5.3 percent below last year, hit by high fuel costs and the wider economic crisis. Crude oil imports by No. 3 consumer Japan fell 3.3 percent to 4.13 million barrels per day in August from the same month last year, government data showed on Thursday.

European stocks were steady, while the dollar fell against a basket of other major currencies. "The U.S. may be closer to reaching a deal to approve the bailout but there is still a lot of uncertainty on its overall impact on the economy," said Mark Pervan, an analyst at Australia and New Zealand Bank.

Analysts said slow recovery in oil and gas production in the U.S. Gulf of Mexico from Hurricane Ike, falling U.S. inventories and lower OPEC supplies would offer support for prices. Mexico is temporarily cutting its crude output by 250,000 barrels per day because of shutdowns at U.S. refineries caused by Ike.

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