US & World Daily Markets Financial Briefing 28-11-2008

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U.S. Stocks Open Little Changed After Holiday

Stocks opened little changed on "Black Friday," the traditional start of the U.S. holiday shopping season, with subdued prospects for retailers apparently already factored in by investors.

At the start of a shortened trading day, the Dow Jones Industrial Average (DJI) was up 1.3 points at 8,726, with 11 of its 30 components opening higher.

The S&P 500 index was down 3 points at 884, while the Nasdaq Composite (RIXF) fell 17 points to 1,514.

"Today marks the start of the holiday shopping season (a.k.a. Black Friday) in the U.S., although given the dismal environment, many retailers had started their promotions early," said Doug Porter, an economist at BMO Capital Markets.

Traders were watching for clues to the holiday-season performance by, which are expected to have the worst holiday season in years after posting their weakest October results on record, as shoppers kept a tight grip on their wallet amid a worsening economy.

On Wednesday, luxury jewelry retailer Tiffany & Co. (TIF) slashed its full-year outlook, announced job cuts and reduced capital spending in anticipation of soft holiday sales.

U.S. markets were closed Thursday for Thanksgiving. On Wednesday, U.S. stocks rose for the fourth session in a row as investors focused on deal-making in the technology sector and shrugged off gloomy economic data and downcast corporate earnings reports.

Oil futures were under pressure. Crude for January delivery was down $1.67 at $52.77 a barrel. In Tokyo, the Nikkei 225 gained 1.7%. In London, the FTSE 100 was down 0.3%.

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FOREX-Dollar reverses losses, euro falls broadly

LONDON - The dollar gained traction against major currencies on Friday, rising as fears about the depth and breadth of a global recession reasserted influence on sentiment. Increased wariness of risk helped push European shares into negative territory , while the low-yielding yen gained ground.

The euro faced broad pressure with tumbling euro zone inflation seen leaving the European Central Bank with room to cut interest rates more aggressively from the current benchmark rate of 3.25 percent.

Provisional figures showed euro zone annual inflation plunged to 2.1 percent in November from 3.2 percent in October.

"Shares are struggling and clearly this is related to risk aversion. Unless we get more durable equity support then the trend for dollar and yen gains will probably be the order for the day," Rabobank currency strategist Jeremy Stretch said.

Traders also said talk of sizeable month-end dollar buy-orders at the London 1600 GMT currency fixing was adding support to the U.S. unit.

By 1119 GMT, the dollar was 0.1 percent higher against a basket of six major currencies at 85.870 .DXY, while the euro fell 0.4 percent to $1.2834. The single currency dropped 0.7 percent to 122.22 yen, while the dollar dipped 0.1 percent to 95.21 yen. Activity was thinner ahead of the U.S. market open later in the day after the Thanksgiving holiday.

Looking ahead to next week, market participants were bracing for interest rate decisions by several central banks next week, including the Bank of England, the European Central Bank, the Reserve Bank of Australia and the Reserve Bank of New Zealand.

Calyon strategists said in a note to clients that while European sentiment continued to point to weak growth, the ECB might still opt for a more measured approach to monetary policy.

"We still suspect that the Governing Council will plump for a 50 basis point cut next week, suggesting that policy disappointment could weigh on the euro toward the end of next week," they added. For the UK, economists polled by Reuters on Thursday expect the BoE will follow up November's shocking 150 basis point interest rate cut with at least a 50 point chop when it meets next week

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European shares down at midday; autos, commods hit

LONDON - European shares slipped by midday on Friday, hurt by weaker mining and energy stocks that tracked a drop in commodity prices, while persistent worries about a global economic downturn put pressure on automobiles and banks.
      
At 1145 GMT, the FTSEurofirst 300 index of top European shares was 0.4 percent lower at 849.12 points after falling as low as 843.22. It has risen more than 11 percent this week and is on track for the third biggest weekly percentage gain on record.
      
The index is still down 8.7 percent on the month and down 44 percent this year, however, reflecting a credit crisis that has hit banks and pushed the global economy towards a recession.
     
Weaker metals prices put pressure on mining stocks. Anglo American, Vedanta Resources, Lonmin, Kazakhmys, Xstrata, Antofagasta and Rio Tinto fell between 1.6 and 6.5 percent. Energy stocks followed crude prices, which fell below $54 a barrel. Total fell nearly 2 percent, BP was down 1 percent and Tullow Oil shed 2.3 percent.
      
"Going into the weekend, one can't help but worry that we are only a heartbeat away from the next scare story," said Chris Hossain, senior sales manager at ODL Securities. "The markets appear to have been buoyed by the feeling that the U.S. will be bailing out the auto industry, but one has to wonder how much more the global governments can continue to support troubled industries," he added.
      
The automobile sector took the most points off the index. Daimler AG fell 6 percent, Porsche was down 4.6 percent and Volkswagen shed 2.7 percent, on growing concerns about a global economic slowdown.
       
Canada joined the growing number of nations officially in recession, with Japan, Germany, Italy and the euro zone as a whole already on the list and the United States and Britain expected to get there soon.
      
Euro zone inflation plunged to 2.1 percent in November and unemployment rose faster than anticipated, data showed, boosting expectations of a deep interest rate cut by the ECB next week as the economy shrinks.
      
"Interest rate cuts are not going to immediately impact on financial markets, as far as I'm concerned. Whether it's equity markets or other markets, it's going to take time," said Neil Parker, a strategist at Royal Bank of Scotland.
      
Central banks have slashed interest rates to get credit flowing again and governments have pledged trillions of dollars in bank bailouts, extra spending and tax cuts to kick-start their economies and avoid massive job losses.
     
Banks were also weaker. Barclays declined 1.3 percent, HSBC shed 1.4 percent, Royal Bank of Scotland  fell 3.8 percent and UBS was down 3.8 percent Britain bought a 58 percent stake in Royal Bank of Scotland as the state picked up 15 billion pounds ($23 billion) of shares in the lender after investors shunned a rescue plan.
      
Commerzbank shares surged 7 percent after it sealed its takeover of Dresdner Bank ahead of time late on Thursday, paying less than market participants had feared.
      
German industrial conglomerate ThyssenKrupp posted better-than-expected full-year pretax profit, but declined to propose a higher dividend and gave no profit forecast for the current year. Its shares were up 0.3 percent.
      
Across Europe, Britain's FTSE was up 0.1 percent, Germany's DAX fell 0.7 percent and France's CAC lost 1 percent.

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Hong Kong, Seoul Rise For Fourth Straight Session

Most Asian markets advanced Friday, with Hong Kong and South Korean shares taking gains into a fourth straight session, paced by banks as investors snapped up beaten-down lenders such as Industrial Bank of Korea and HSBC Holdings.

Japanese shares hovered around break-even Friday in the absence of indicators from Wall Street and on data showing the country's industrial production fell by a more-than-expected 3.1% in October.

The Nikkei 225 Average rose 0.7% to 8,433.31 in the afternoon while the Topix index dropped 0.3% to 831.27.

In Tokyo, shares of Panasonic Corp. (PC) tumbled 10.7% a day after the consumer electronics company slashed its annual net profit forecast, saying business conditions were "deteriorating sharply."

In Hong Kong, the Hang Seng Index rose 2% to 13,820.81 and the Hang Seng China Enterprises Index climbed 2% to 7,263.95.

China's Shanghai Composite slipped 1.2% to 1,894.36 as investors worried about the weakening economic conditions that forced the central bank to slash lending rates as well as banks' reserve requirements earlier this week.

Australia's S&P/ASX 200 advanced 2.7% to 3,683.20, South Korea's Kospi rose 1% to 1,074.22 and New Zealand's NZX 50 index climbed 0.6% to 2,685.93.

Singapore's Straits Times Index fell 1.2% to 1,690.64 and Taiwan's Taiex dipped 0.2% 4,444.70.

Financial stocks broadly extended gains on bargain buying in the beaten-down sector, with Industrial Bank of Korea shares jumping 4.9% and KB Financial Group (KB) rising 2% in Seoul.

In Hong Kong, shares of Industrial & Commercial Bank of China, or ICBC, climbed 1.8%, while market heavyweight HSBC Holdings (HBC) added 1.2%.

Banking shares, however, skidded on mainland China, with ICBC dropping 2.8% and Bank of Communications sliding 4.9%.

In Asian currency trading, the U.S. dollar bought 95.27 yen, compared with 95.04 yen late Thursday.

In energy trading, January crude-oil futures slipped 64 cents to $53.80 a barrel in electronic trading from its previous close at $54.44 Wednesday on the New York Mercantile Exchange.

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Gold little changed; traders eye OPEC meeting

LONDON - Gold was steady in Europe on Friday in quiet trade after the U.S. Thanksgiving holiday, with traders eyeing the outcome of an OPEC meeting over the weekend.

Softer oil prices are weighing on the market a touch, although a stable dollar and a lack of buying interest due to the U.S. holiday are keeping prices within a narrow range.

Spot gold was quoted at $812.40/814.40 an ounce at 0924 GMT, little changed from $814.60 an ounce late on Thursday. Traders will closely watch OPEC's informal meeting on Saturday in Cairo, where ministers will discuss a possible cut in production. A sharp move in the oil price could drag gold in its wake.

"Obviously there is still a correlation between oil and gold," said Wolfgang Wrzesniok-Rossbach, head of sales at precious metals group Heraeus. "If OPEC make a decision which might drive the oil price up, that would also be positive for gold."

The precious metal tends to move in line with crude, both because it is bought as a hedge against oil-led inflation and because stronger oil prices tend to boost interest in commodities as an asset class.

The other main external driver of gold, the dollar, was steady against the euro, though it slipped against a basket of currencies. A weaker dollar typically benefits gold, which is often bought as an alternative investment to the U.S. currency.

In addition to the OPEC meeting, traders will be watching for a raft of economic data due out next week, which could have a significant impact on the dollar. "Next week, manufacturing indices for all major economies will be released," Standard Bank analyst Walter de Wet said.

"This should indicate the speed at which manufacturing is contracting globally," he said. "On Tuesday, U.S. auto sales follow, and on Friday, U.S. non-farm payrolls."

Dresdner Kleinwort said on Friday it now expects gold prices to average $870 an ounce this year, falling to $740 an ounce in 2009. For silver, it forecasts an average price of $15 an ounce in 2008 and $9.75 next year. Wrzesniok-Rossbach said delegates at a forum on Thursday organised by Heraeus expected gold prices to rise to new highs next year.

"We do expect new all-time highs in gold within the next six to twelve months," he said. "Consensus was that in the long run all the bailouts we are seeing, whether in the car industry, the banking industry or others ... will end with inflation, and that would be positive for gold."

Wrzesniok-Rossbach said the outlook for platinum group metals and silver, which have more industrial uses, was less rosy as recession was expected to curb demand.

Spot platinum was quoted at $848.50/868.50 an ounce, slightly down from $853 an ounce late on Thursday. Palladium was at $185/193 an ounce against $187.50.

Among the other precious metals, silver was at $10.25/10.33 an ounce against $10.31 an ounce.

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