US & World Daily Markets Financial Briefing 27-01-2009

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US STOCKS-Wall St edge up on earnings; economy woes drag

NEW YORK - U.S. stocks edged higher on Tuesday, boosted by standouts in a bleak earnings season, including American Express, but a record low in consumer confidence revived worries over the economy's health.

American Express led the Dow higher, gaining 5 percent to $15.96 after posting results that surpassed expectations, though like many companies, it warned 2009 will be tough.

"There's been some bright spots (in earnings) but those come amidst reduced expectations, so those come with a grain of salt," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

The Dow Jones industrial average .DJI added 9.40 points, or 0.12 percent, to 8,125.43. The Standard & Poor's 500 Index rose 3.70 points, or 0.44 percent, to 840.27. The Nasdaq Composite Index .IXIC was up 7.88 points, or 0.53 percent, at 1,497.34.

But stocks cut gains after the Conference Board's U.S. consumer confidence index fell to a record low in January as the beaten-down housing sector and jitters over job prospects weighed.

"When you have consumer confidence come out and question yet again the strength of any kind of activity economically, you're going to have those gains really pare down," Zaro added.

Limiting gains, Dow component DuPont Co reported a loss, hurt by a decline in demand, and trimmed its full-year 2009 forecast. Shares of the chemical maker were down 3.1 percent at $22.46.

The Federal Reserve's monetary policy setting Federal Open Market Committee begins a two-day meeting on Tuesday and investors will be watching for signals of any nonconventional methods of fighting the credit crisis the Fed might employ.

Economists expect the central bank will leave benchmark interest rates unchanged at zero to 0.25 percent.

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FOREX-Euro's rally on Ifo loses steam

LONDON - The euro ceded earlier gains after hitting a one-week high versus the dollar and the yen on Tuesday after a surprise rise in German corporate sentiment, with bleak underlying economic conditions reasserting themselves.

Trade was volatile as short-term players took profits after the euro had gained sharply since the start of the week as a rise in financial shares had boosted risk sentiment. "One spot of good news cannot make up for headlines showing dire economic conditions," said Geoffrey Yu, currency strategist at UBS, noting that economic and corporate data for the final quarter of 2008 are showing extremely weak readings. "Short-term players are taking profits and it is still not the best environment for risk-taking."

Data from Germany's Ifo economic research institute showed its index for business climate index rose to 83.0 in January from an upwardly revised 82.7 in December, rising for the first time in eight months.

"The sharp sentiment deterioration is close to a bottoming out. Nevertheless, the hard facts are still less encouraging," said Carsten Brzeski, economist at ING Financial Markets. Economists expect the German economy to contract by around 2 percent this year.

By 1220 GMT, the euro was flat against the dollar at $1.3160 after hitting a high of $1.3328 shortly after the Ifo data was released.

The euro was also flat at 117.24 yen after hitting the day's high of 119.45 yen, a level last reached on Jan. 19. The euro was also hurt as European shares fell more than 1 percent on the day, and on dovish comments by an European Central Bank official.

ECB Governing Council member Guy Quaden was quoted as saying in a Belgian newspaper on Tuesday that the ECB is probably prepared to cut interest rates again.

"We are probably ready to cut further. But I am launching an appeal to the banks to pass on the impact on rates that they impose on investors and consumers," he was quoted saying at an event on Monday. [nBRE001565]

Sterling rose against the dollar, climbing some one percent to $1.4100 while it was also 0.7 percent higher against the euro at 93.57 pence.

Earlier, the yen had stumbled broadly on improving risk demand after Japan launched a $16.7 billion scheme to buy shares in firms whose future has been threatened by the financial crisis.

"The news from Japan is positive for risk appetite, and has provided a firm undertone in the market," said Anders Soderberg, chief currency strategy at SEB Merchant Banking in Stockholm.

The low-yielding yen often takes its cue from perceived swings in investors' risk appetite and has tended to fall against higher-yielding currencies when risk tolerance increases.

The dollar was broadly flat as markets awaited the U.S. Federal Reserve's two-day policy meeting ending on Wednesday. With rates already near zero, the Fed is expected to say it will keep rates low for the time being, and focus is on which instruments the U.S. central bank will purchase to boost ease strained credit conditions.

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European Shares Lower As Oil Producers Fall

European shares couldn't hold onto early gains on Tuesday, with oil producers under pressure, although investors welcomed news that Siemens and KPN are sticking to fiscal-year guidance despite the gloomy economic backdrop.

The pan-European Dow Jones Stoxx 600 index declined 0.8% to 186.43, pressured by a 2.9% drop for Royal Dutch Shell (RDSA) shares and a 1.3% decline for BP (BP).

Still, shares rose strongly across Europe on Monday, led by financials after Barclays reassured on profit trends. Barclays (BCS) rose another 6.5% on Tuesday to 94 pence.

Meanwhile, Siemens (SI) shares climbed 3.7% in Frankfurt after it also calmed investors worried about its outlook. "We are sticking to our 2009 targets, even though reaching them has become more ambitious," chief executive Peter Loescher said in a statement.

At the same time, the conglomerate posted an 81% drop in first-quarter net profit to 1.2 billion euros, with last year's profit flattered by a 5.4 billion euro gain from the sale of Siemens VDO Automotive.

It was a similar story for Dutch telecoms operator Royal KPN , up 2.9%. The firm's fourth-quarter net profit fell 81% to 297 million euros in part as the prior-year figure was boosted by a tax gain, but it confirmed its outlook for 2010 and said it has suffered "no material impact" from the economic downturn.

Although there was some better news on the economic front on Tuesday, with the Ifo Institute's German business climate poll coming in at a better-than-expected 83.0 in January, economists remained cautious.

"The rule of thumb states that three successive increases are required to confirm a change in trend. With this mind, we would caution against concluding that the worst has passed and that the economy has now entered calmer waters," said Kenneth Broux at Lloyds TSB Corporate Markets. The Ifo data's rise was the first in 8 months.

Overall, the German DAX 30 index declined 0.7% to 4,295.84, the French CAC-40 index dropped 0.9% to 2,929.09 and the U.K. FTSE 100 index fell 1.3% to 4,154.54.

Late Monday, American Express (AXP) reported a 79% profit drop but its shares rose in after-hours trade. Back with the European financial sector, life insurance and pensions provider Friends Provident rose 10.8%.

The firm said that the operating environment in the U.K. remains tough, but that it has around 850 million pounds ($1.19 billion) of excess capital under European insurance rules and its dividend policy remains unchanged.

Shares in Germany's Software AG rose 9.6%. Operating earnings rose 32% in 2008 to 180.5 million euros ($238.5 million) and group revenue improved by 16% to 720.6 million euros.

Shares of Clariant , the Swiss chemicals firm, climbed 1.5%. It expects to report a 180-million-franc ($158.6 million) impairment for the fourth quarter, cut another 1,000 jobs on top of the previously announced 2,200 jobs and omit its 2008 dividend, due to deterioration in leather and textile markets. Annual sales fell 5% to 8.1 billion francs.

It said it met its goals for an operating margin before exceptional items in the range of 6.5% to 6.8% and cash flow from operations of about 400 million francs.

French utility Veolia Environnement (VE) climbed 1%. It was upgraded to buy from hold at Societe Generale, with the broker saying the appointment of a new finance chief could incite further cost cutting beyond the 400 million euros ($528 million) of savings already planned.

Shares of Irish cider maker C&C Group fell 11.1%. It was cut to sell from buy at Goldman Sachs, with the broker saying there's been a faster deterioration than it expected in the U.K. and Irish cider markets.

"It remains unclear to us how the GB operation will stop losing market share to Heineken in such a challenging economic environment," the broker said. Heineken shares declined 2.8%.

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Asian Shares End Higher; Nikkei Leads Region, +4.9%

Asian stocks closed higher Tuesday, led by a nearly 5% gain in the Nikkei average as exporters benefited as the yen weakened and after Japan said it may use public funds to help companies hurt by the financial crisis.

Stocks in Tokyo extended gains after the Ministry of Economy, Trade and Industry said it's considering a plan to provide public funds to companies that have been hardest hit by the financial crisis, broadening the provision of government aid beyond the banking sector.

The Nikkei 225 climbed 378.93 points, or 4.9%, to 8061.07, Australia's S&P/ASX 200 added 3% to 3,444.10 and New Zealand's NZX-50 was up 1.1% at 2,735.86.

Many markets remained closed for the Chinese New Year break, including Hong Kong, South Korea, China, Singapore and Taiwan.

Markets were also bolstered by indications of a stronger start to U.S. trading, with U.S. stock futures indexes up around 0.5%.

After-hours in the U.S., American Express shares added 2.6%. It reported a 79% drop in fourth-quarter net income, reflecting restructuring charges and a rise in loan delinquencies and write-offs, although the company's provision for loan losses was smaller than in the prior year.

Gainers in Tokyo included non-life insurers Tokio Marine Holdings, shares of which were up 9.4% to 2,395 yen. After the trading close, Nomura Holdings reported a worse-than-expected record quarterly net loss of 342.9 billion yen ($3.8 billion), for the October to December period. It gained 4.9% before the announcement.

There were gains in exporter stocks, with Honda Motor rising 9.3% after the company said it would cut vehicle output in Japan and North America by 50,000 units in the final two months of the fiscal year.

Miners were among the leading sectors in Sydney, helped by stronger metal prices, including gold, which rallied to a four-month high to close above the $900 an ounce level in overnight trading.

In Sydney, shares of BHP Billiton were up 6.9% and Newcrest Mining adding 8.5%. Energy company Woodside Petroleum was up 4.5%.

"You are getting a relief rally after such heavy falls, with some institutions buying near the November lows," said Patrick Crabb, senior institutional trader at Goldman Sachs JB Were.

Financials were recovering, with Commonwealth Bank of Australia shares up 2.8% and Westpac higher by 1.5%. Philippine shares were 0.6% higher, Indonesia's market was up 1.6%, Thai shares added 0.6% and India's Sensex added 3.8%.

Currency trade was light with the euro slightly higher. The euro was around $1.3181, from $1.3168 late in New York, after having risen to $1.3237 earlier in Asia.

Against the yen the European currency was quoted at Y118.94, from Y117.28 in New York. The dollar was higher against the yen, buying Y89.79 compared with Y89.03.

Spot gold gave up earlier gains to trade 90 cents lower at $901.40 a troy ounce while three-month copper on the London Metal Exchange slipped $45 to $3,510 a metric ton. "Fundamentally, the base metals market is still bearish. There is low demand and low investment in infrastructure, particularly in Europe," said Barclays Capital trader Naoki Mita.

March Nymex crude oil futures were up as much as 84 cents on the Globex on the electronic platform at $46.57 a barrel.

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PRECIOUS-Gold dips 1 pct to below $900/oz on profit-taking

LONDON - Gold slipped more than 1 percent in Europe on Tuesday as investors took profits after the last session's gains, with a firmer euro versus the dollar and an uptick in equity markets suggesting risk aversion is easing.

Spot gold dipped to a low of $891.60 an ounce, and was quoted at $894.40/896.40 an ounce at 1026 GMT, against $902.65 late in New York on Monday. U.S. gold futures for February delivery GCG9 on the COMEX division of the New York Mercantile Exchange fell $12.60 an ounce to $896.20.

Its usual close relationship with the dollar, weakness in which typically benefits gold, has broken down, with both assets slipping on Tuesday as risk aversion eased a touch. "A stronger dollar implies panic about the economic outlook but should mean a weaker gold price, in theory," said Daniel Smith, an analyst at Standard Chartered.

"The fact that that (relationship) has broken down highlights how worried people are about where they can put their money and who they can trust."

The euro jumped on Tuesday after a surprise rise in German corporate sentiment hinted companies there were less pessimistic over the economic outlook than expected.

Equity markets also edged higher in Europe as banks extended the previous session's gains, suggesting risk aversion may be softening.

Gold climbed to its highest in three months on Monday, hitting new peaks in sterling and euro terms, as investors worried about the outlook for the financial system.

A Reuters survey of 52 analysts published on Monday showed most expect gold to hold its ground in 2009 despite expected falls in other asset prices, on worries over the global economic outlook and turmoil in the financial markets.

Investment in physically backed products such as exchange-traded funds has been strong in recent weeks as investors seek a safe store of value.

Holdings of New York's SPDR Gold Trust GLD inched up to a new record for the sixth consecutive session on Monday, and have climbed more than 52 tonnes since the beginning of the year.

London-based ETF Securities said its gold-backed ETFs saw inflows of 420,000 ounces last week. However, gold jewellery demand remains weak, dealers say, and is likely to remain so in key global centres as prices rise. "As the demand for jewellery is very sensitive to price movements, demand for gold from India, Turkey and the Middle East, the main centres of the gold jewellery industry, should continue to weaken," said Commerzbank.

Oil climbed on expectations for OPEC supply cuts and a spate of cold weather, but offered little support to gold. Traders are awaiting U.S. stocks data later in the session.

Among other precious metals, silver softened in line with gold to $11.96/12.02 an ounce from $12.04 an ounce late on Monday. The Reuters survey showed most analysts polled expected silver prices to fare better than those of the other industrial precious metals platinum and palladium, as risk aversion boosts interest in silver as a safe haven.

The platinum group metals are also under pressure from gold's slip. Both platinum and palladium suffered in recent months from fears over falling demand from carmakers, who account for around half of global consumption.

Japan's second-biggest carmaker Honda announced further production cuts in North America and Japan as the industry struggles in the downturn. Platinum edged down to $951.50/961.50 an ounce from $959.59, while palladium eased to $187.50/192.50 an ounce from $190.

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