US & World Daily Markets Financial Briefing 29-01-2009

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US Stocks Fall; Financials, Energy Lower

U.S. stocks opened lower Thursday, as early economic data illustrated the weakened state of the economy and as more companies reported weak earnings, including Ford Motor Co. Eli Lilly and Co. and Starbucks Corp.

Futures remained lower after the government reported a rise in weekly jobless claims and a decline in orders for U.S. durable goods.

At 10 a.m., figures on December new-home sales are scheduled for release. The Dow Jones Industrial Average was down 84 points at 8291, while the S&P 500 fell 12 points to 861. The Nasdaq Composite was 22 points lower at 1536.

"After a lengthy winning streak, confidence remains fragile and some profit-taking is on the cards," said Martin Slaney, head of derivatives at GFT.

"The job cuts at Starbucks have hit sentiment -- the coffee-house barometer has swung back to recession and is a reminder of how the economic situation is worsening. Starbucks is seen as a benchmark for the higher-end retail sector," he said.

Late Wednesday, Starbucks reported earnings that fell short of expectations and said it plans to close 300 stores and lay off nearly 7,000 workers. The company has been hit by a pullback in discretionary spending as customers confront the prospect of job losses and home foreclosures and grapple with tighter credit conditions.

U.S. markets were in a rallying mood on Wednesday, with financials helping the S&P 500 extend its longest winning streak this year. Hopes for additional stimulus as well as a possible FDIC-run bank to soak up toxic assets had financials leading a broad-market rally. The Dow Jones Industrial Average rose 200 points, the S&P 500 added 28.38 points and the Nasdaq Composite rose 53.44 points.

However, analysts were saying Wednesday that the gains hardly signaled a break in what's been a range-bound bear market.

A slew of earnings poured in ahead of Thursday's bell. Ford posted a fourth-quarter loss of nearly $6 billion, while Eli Lilly swung to a $3.63 billion loss in the period. AstraZeneca Plc (AZN) posted flat earnings and said it would cut 15,000 jobs.

In addition to Starbucks, disappointment from wireless bellwether Qualcomm Inc. (QCOM) could add to the pressure on stocks, along with property and casualty insurer Allstate Corp. (ALL). Added to that was a $2.8 billion loss reported by integrated oil major Royal Dutch Shell (RDSB).

Banking stocks were back under pressure in Europe, and the mining sector was also weak after London-listed Xstrata launched a 4.1 billion British pound ($5.9 billion) rights issue.

Asia markets closed higher, with banks leading a rally on the heels of U.S. gains. Hong Kong shares rose 5.5% in the first trading day after the extended lunar New Year break, with financials also leading the way there.

The dollar was slightly weaker against the euro, trading around $1.31. The greenback gained on Wednesday after the Federal Reserve left key interest rates unchanged and said it would stay on its credit-easing path. Currency analysts said there was nothing new in the statement to weigh on the greenback. Against the yen, the dollar was slightly weaker at 89.78.

In commodities trading, crude futures were down $1.47 at $40.69 a barrel, while gold was $4.9 weaker at $883.3 an ounce.

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Dollar Mostly Higher, Waiting For US Data

LONDON -- The dollar is mostly higher in Europe Thursday after the U.S. Federal Reserve failed to be quite as aggressive about further monetary easing as many had expected.

Market sentiment was lifted by news that U.S. President Barack Obama's stimulus package got through the House of Representatives and by hopes that the Treasury will yet remove toxic assets from bank balance sheets.

The general mood helped to lift equities, first in the U.S. with the Dow Jones Industrial Average gaining 2.5%, and in Japan, with the Nikkei rising 1.8%.

However, by the time European trading started, sentiment appears to have turned sour. Most European stock markets were losing as much as 1.5% at the opening.

Apart from disappointment over the Fed not being more explicit about its plans for easing credit conditions some more, markets still face uncertainty over the Obama package as well as more bad economic news.

Stuart Bennett, senior foreign exchange strategist with Calyon Credit Agricole, pointed out that although the vote on the package was positive, it still has further to go.

The package now "goes to the senate next week where it is likely to get a bumpier ride, a process that could spike risk aversion higher over the coming weeks," Bennett said.

A reminder of the risks to the global economy came with the latest jobless figures from Germany, which showed the number of unemployed rising by 56,000 this month. This was not only much more than the 18,000 increase in December but also more than the 34,000 rise that was forecast.

European Central Bank President Jean Claude Trichet said that the bank hasn't excluded cutting rates below 2% or adopting unconventional policy measures.

Now, the focus will be on new U.S. data. Fourth-quarter GDP figures Friday are expected to show a sharp contraction and data due later Thursday are likely to contribute to the impression that the U.S. is still on the slide.

Durable goods orders are expected to have fallen by 2.0% in December after declining by 1.0% in November and new home sales are seen repeating the 2.9% fall registered in November.

By 1053 GMT, the dollar had bounced back from a low of Y89.67 to trade at Y89.93. This was down from Y90.30 late Wednesday, according to EBS.

The euro fell to $1.3062 from $1.3144 and to Y117.41 from Y118.74, as the Japanese currency appeared to be getting some support from Japanese repatriation flows. The dollar was also up at CHF1.1535 from CHF1.1514 while the pound was at $1.4234 from $1.4214.

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European Stocks Decline, Banks Under Pressure

European shares declined Thursday, breaking a three-session winning streak, with banking stocks coming back under pressure and the mining sector falling after Xstrata launched a 4.1 billion pound ($5.9 billion) rights issue.

The pan-European Dow Jones Stoxx 600 fell 1.2% to 191.92.

Xstrata dropped 7.4%, having slumped as much as 15% in early trading, after the miner said it would issue new shares to help pay down its debt and also announced a 35% fall in its 2008 net profit to $3.6 billion.

Other mining stocks also declined, with Rio Tinto (RTP) dropping 5.5% and BHP Billiton (BHP) down 3%.

Banks were also mostly lower after strong gains in recent sessions. BNP Paribas fell 3.9% in Paris, Deutsche Bank (DB) lost 3.8% in Frankfurt and Barclays (BCS) fell 7.5% in London.

Among the main indexes, the U.K. FTSE 100 declined 1.8% at 4,215.88, the French CAC 40 fell 1.3% at 3,036.77 and the German DAX 30 lost 1.1% at 4,468.38.

U.S. markets closed higher Wednesday, but futures were pointing to losses on Wall Street Thursday, with investors expected to take profits amid a wave of earnings news.

Shell swings to loss

Among the major European companies reporting earnings Thursday, Royal Dutch Shell said it swung to a net loss of $2.8 billion in the fourth quarter as the slump in oil prices hurt the value of inventories that it has yet to sell.

Adjusting for the impact of falling prices, its profit would have dropped 28% to $4.79 billion, while production was basically flat.

Shares in the group however, outperformed compared to peers, edging up 0.5% after the group said it intends to continue with a competitive dividend policy.

Shares in clothing retail giant Hennes & Mauritz dropped 3% in Sweden after it reported a 9.4% rise in fourth-quarter net profit to 5.09 billion kronor ($626 million), but also said same-store sales dropped 7% in December.

Pharmaceutical giant AstraZeneca fell 3.5% after reporting a 1% drop in fourth-quarter pretax profit to $1.82 billion and said it will lay off 15,000 people by 2013, up from an earlier target of 7,600 job cuts.

Among relatively few gainers, shares in health care group Novo Nordisk gained 1.2% in Copenhagen after the world's largest maker of insulins reported a fourth quarter profit that more than doubled from a year earlier and raised its long-term financial targets.

The group said profit in the latest quarter rose to 2.33 billion Danish kroner ($409 million) from 977 million kroner a year earlier on the back of strong insulin sales.

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Asia Shares Gain on U.S. Plans; Hong Kong Gains 5.5%

Most Asian markets closed higher Thursday, as U.S. plans to help troubled banks boosted financial shares and a weaker yen boosted Japanese exporters.

Hong Kong shares rose strongly on the first trading day after the extended Lunar New Year break. And New Zealand shares got a mild boost after the Reserve Bank of New Zealand cut its benchmark interest rate by a larger-than-expected 1.5 percentage points, bringing the official cash rate - once among the highest benchmark rates in the industrialized world - to 3.5%.

Japan's Nikkei 225 Stock Average ended 1.8% higher, rising 144.95 points to 8251.24 and bringing its three-day advance to 7.4%.

Australia's S&P/ASX 200 closed up 0.9% at 3526.20 and South Korea's Composite index added 0.7% to 1,166.56. New Zealand's NZX-50 added 0.8%.

Hong Kong's Hang Seng index surged 5.5% or 575 points to 13154.43. Shares were bid sharply higher from the open, trading for the first time since Friday and reacting to some upbeat announcements, such as from Barclays Bank, during the holiday break. Shares of HSBC jumped 9%.

"We're still seeing people look at stocks and say 'that's attractive, but I'm not going to leap in with both hands and buy stacks of it, I'll just buy a little bit,'" said Andrew Sullivan, trader with Main First in Hong Kong. "We are in the middle of reporting season and people will be waiting to see not so much the results, but the guidance from the companies," he said.

In other regional action, Singaporean shares closed flat at 1766.72. Malaysian shares added 0.4%, and Indonesian shares rose 0.2%.

Shares traded in the Philippines fell 0.5%, despite better-than-expected economic growth data for the fourth quarter. Thailand eased 3%. India's Sensex slipped 0.2%.

Markets in China, Taiwan and Vietnam remain closed for the Lunar New Year.

Trading was underway Thursday in several Asian stock markets when Congress voted to approve a $812 billion stimulus package. Plans were also reportedly advancing on a U.S. government program that would see the creation of a separate entity to house banking assets whose value has plummeted, in exchange for bank commitments to extend loans to consumers and businesses.

"The bad bank plan faces a major conundrum," said Dariusz Kowalczyk, chief investment strategist for SJS Markets in Hong Kong. "If the price for participation is that banks will be forced to increase lending, the bad problem will return and confidence in their valuations will not be restored. On the other hand, if they are not required to lend, they many be afraid to do so given the recessionary environment."

Strength among some Asian markets waned late Thursday, with Dow Jones Industrial Average futures quoted down 42 points.

In Japan, Kazuhiro Takahashi, general manager at Daiwa Securities SMBC, said the market had discounted news the U.S. Treasury may buy banks' bad assets. "We need other factors to encourage investors to chase the market higher," he said.

"Japanese domestic investors are probably not as optimistic as U.S. stock investors about the additional stimulus and 'bad bank' plans, because from the experience in Japan they know that setting up a bad bank doesn't mean the problem disappears," said Mitsubishi UFJ Securities strategist Naomi Hasegawa. "It simply means the bad assets are shifted from private-sector banks to the government."

In Japan, Sumitomo Mitsui Financial Group, the country's second-biggest bank by assets, was up 13.4%.

Gainers in the financial sector also included Mitsubishi UFJ Financial Group, shares of which were up 4.8%, while those of Mizuho Financial Group were 5.2% higher. Sony Corp. was up 4% helped by the dollar's recent gains against the yen. After the close of trade, Sony reported that third-quarter net income fell 95% and the company forecast its first full-fiscal-year loss in 14 years.

In South Korea, Samsung Electronics rose 2.1% and Shinhan Financial was up 3.3%.

In Australia, Rio Tinto was down 0.6% on concerns about the possibility of a heavily discounted rights issue. National Australia Bank was up 3.7%.

The New Zealand dollar fell to 52.08 U.S. cents after the Reserve Bank interest-rate cut, from 53.03 cents earlier.

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Gold Falls To Week's Low On Profit-Taking

LONDON -- Gold fell to its lowest price of the week Thursday as profit-taking continued to shave more off the recent rally. A rising dollar and weaker crude oil prices also sapped gold of strength, traders said.

At 1056 GMT, spot gold was trading at $875.15 a troy ounce, down 1.4% on the day.  Spot silver was 2.2% lower at $11.7/oz.

Spot platinum reversed gear and dropped 1.3% to $947.50/oz. Spot palladium was unchanged at $188/oz. Most traders remained bullish about gold's short-term technical outlook, and expect safe haven demand to continue to drive the metal higher.

"The move down today is some liquidation from late safe-haven buyers," said Gerry Schubert, director of precious metals at Fortis in London. "But overall, the move is still on, there's enough bullish targets."

Schubert said gold may look weak but it could quickly burst higher and may even end the day back above $900/oz. "I think it's a bear trap."

UBS analyst John Reade maintained his short-term forecast of $900/oz for gold, pointing out that the risk appetite evidenced this week by the recovery in banking stocks is on the wane.

"Thinking about 2009 in broad terms, we expect poor economic data and ongoing difficulties with the financial crisis to keep the UBS Risk Index elevated for much of the year: this should be good for investors in gold," Reade wrote in a daily report.

A minority still view gold's rally to a three-and-a-half-month high on Monday as flying in the face of deflationary pressures.

The euro-zone's business and consumer confidence fell to a record low in January, according to a monthly survey by the European Commission. Also on Thursday, Germany's federal labor office said unemployment was sharply on the rise in the country.

These indicators "emphasize that it is not inflation that is the biggest factor, but deflation," said Dresdner Kleinwort analyst Peter Fertig in Frankfurt.

Fertig said deflationary concerns, more interest cuts by the European Central Bank that should weaken the euro and gold's bearish technical indicators should drive the metal back toward $850/oz. "Gold clearly has peaked in the short-term."

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