US & World Daily Markets Financial Briefing 29-09-2008

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US STOCKS-Market plunges on bank woes after Wachovia

NEW YORK - U.S. stocks tumbled on Monday as investors worried about the stability of the banking sector after Wachovia Corp  became the latest major U.S. bank to succumb to fallout from the credit crisis.
      
The Dow Jones industrial average tumbled 325.44 points, or 2.92 percent, to 10,817.69. The Standard & Poor's 500 Index  plunged 43.97 points, or 3.62 percent, to 1,169.04. The Nasdaq Composite Index  sunk 87.95 points, or 4.03 percent, to 2,095.39.

US August consumer spending unchanged; personal income up 0.5 pct

WASHINGTON - US consumer spending was flat in August despite a larger-than-expected increase in personal income, while inflation rose at its fastest annual pace in more than 13 years, the Commerce Department said today.
   
Personal consumption expenditures were unchanged in August after rising a downwardly revised 0.1% in the prior month. August's unchanged level of spending was the lowest since February, when spending was also flat.
   
Economists polled by Thomson Reuters IFR Markets expected consumption to rise 0.2% in August. After adjusting for inflation, real consumer spending was also unchanged in August, after falling slightly in June and July.
   
Personal income was up 0.5%, well above the 0.2% rise economists were expecting. But after adjusting for inflation and taxes, real disposable income fell 0.9% in August, the third consecutive monthly decline.
   
Private employers paid their workers $24.5 billion in August, up from $16.3 billion in July. Payrolls were up in all categories except manufacturing, which fell $1.6 billion from July.
   
The overall increase in wages and salaries offset a sharp drop in payments issued under the Economic Stimulus Act of 2008. Those payments fell to $1.0 billion in August from $13.7 billion in July.
   
Inflation as measured by the core Personal Consumption Expenditure (PCE) index, which excludes food and energy, rose 0.2% in August as expected. That's less than the 0.3% gain seen in June and July.

Over the last year, the core PCE price index has increased 2.6%, the highest this measure of inflation has been since January 1995.

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FOREX-Euro, stg hit slopes vs dlr as bank crisis spreads

LONDON - The euro and sterling tumbled more than 2 percent against the dollar on Monday as the impact of the latest financial storm fanned out beyond the United States, forcing bank nationalisations in Europe.

European banking sector troubles, which also sent share prices diving, threatened to overshadow the proposed and hard fought $700 billion U.S. bank bailout deal that looked set for approval later on Monday.

The dollar's rally against the single European currency deepened as the Belgian, Dutch and Luxembourg governments nationalised parts of banking and insurance group Fortis and agreed to inject 11.2 billion euros into the financial group.

Sterling was on track for its biggest one-day percentage fall against the dollar as troubles at UK lender Bradford & Bingley led the UK government to nationalise its lending activities.

And Iceland's banking sector stress was highlighted as its government took control of Glitnir, its third biggest bank. Analysts said the latest developments snapped attention back to the international nature of the financial crisis, compared with a recent tendency to concentrate on the United States.

"I think there's been a very lax attitude over the last couple of weeks to suggest that its been seen as a purely U.S.-centric problem," Rabobank markets strategist Jeremy Stretch said. "We've gone from a piece-meal response in the U.S. to something more substantive with the bailout package, whether it works or not is a different matter," he added.

By 1100 GMT, the euro had fallen 1.8 percent against the dollar to $1.4347, having earlier fallen more than 2 percent to a 10-day low at $1.4301 according to Reuters data.

Sterling dipped below $1.80 to a 10-day low at $1.7962, setting it on course for its biggest one-day percentage fall since mid-1993. U.S. lawmakers geared up for a possible vote on Monday on creating the massive $700 billion government fund.

Congressional leaders from both parties said they had reached a tentative agreement early on Sunday, but questions abound as to whether the rescue plan, which aims to use taxpayer funds to buy up toxic mortgage debt, would restore confidence to shaky markets and head off a deeper downturn.

"Obviously progress of the Fed's bailout plan when it is presented on Capitol Hill later today will provide some key direction for markets," said Gary Thomson, head of sales trading at CMC Markets.

"Just how sustainable the dollar's rally will be may well depend on the speed of progress of the bill but one thing that seems certain is that the greenback may well be on the front foot once more," he added.

Reflecting the dollar's broad rally, the high-yielding Australian and New Zealand dollars fell 2.0 and 1.5 percent respectively versus the U.S. currency, which also gain 1.4 percent against the safe-haven Swiss franc. But while the Swiss franc was depressed, aversion to risk boosted the low-yielding Japanese yen as share prices fell.

The euro slipped 1.6 percent to 152.36 yen, while the FTSEurofirst 300 index was down 3.16 percent at 1069.70.

"It looked on Friday as if the passage of the (U.S. bailout) plan would cause the yen to suffer, but there has been such a run of names in trouble that the yen impact has been small," Calyon senior currency strategist Daragh Maher said.

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European shares slip as Dexia, Fortis hammer banks

LONDON - European share prices fell  sharply early on Monday, as nationalisations and liquidity fears  hammered bank stocks and overshadowed prospects in the United  States of the $700 billion bailout plan for its banks going  ahead.
   
By 0856 GMT, the FTSEurofirst 300 index of top European  shares was down 2.6 percent at 1,075.90 points, having fallen  more than 3 percent earlier.
   
Belgian-Dutch group Fortis underwent  nationalisation on Sunday after emergency talks with European Central Bank President Jean-Claude Trichet. Fortis is the first major euro zone bank to buckle since  U.S. mortgage defaults triggered global financial turmoil in  August last year. Its shares gave up early gains to slide 18  percent.
   
"The nationalisations have an incredibly negative readacross  for the sector," said Mark Sartori, head of European sales  trading at Fox-Pitt, Kelton.  "The contagion is spreading to mainland Europe and  everyone's asking: 'who's next?'" added Sartori. The DJ Stoxx European banking sector index fell  nearly 5 percent.
   
Fortis's Belgian-French rival Dexia sank 23  percent following a Le Figaro newspaper report that said the  bank could launch an emergency capital increase. A Dexia spokesman said that it continued to evaluate a  response to the current global financial crisis, offering no  comment on any capital increase. He said the company's liquidity  situation was totally healthy.
   
Germany's Commerzbank was down 23 percent. This  was despite the group saying it has already covered group refinancing needs for 2008. Hypo Real Estate plummeted 60 percent after it secured a credit line of up to 35 billion euros ($51.21 billion)  from a consortium of listed and public-sector banks in Germany,  a source familiar with the situation said on Monday. 
   
"This move will have significant impact on Hypo Real's  future profits. We are downgrading from "buy" to "hold" as an  initial step. Our estimates and target are under review  until further details are disclosed," said Christoph Bossmann,  at WestLB.
   
Across Europe the FTSE 100 index was down 2.5 percent,  Germany's DAX was 3.1 percent lower and France's CAC 40 was down  3.3 percent. The UK government said that lender Bradford & Bingley's  branch network will be sold to Spanish bank Santander  and the remainder of the group would be nationalised.

"The news from Fortis and Bradford & Bingley has agitated  worries that there are more problems out there and that the $700  billion package will not turn things around quickly. There are  concerns now earnings across most markets will be weak," said  Bernard McAlinden, market strategist at NCB Stockbrokers.
   
Royal Bank of Scotland, UBS, Banco  Santander, Barclays, UniCredit and  BNP Paribas were 5.7-8.2 percent lower. Investors stayed cautious as U.S. lawmakers prepared to vote  on Monday on a $700 billion government fund to buy bad debt,  worrying that this may not be enough to help stabilise the economy.  
  
Worries over demand from a slowing economy pushed miners  lower as copper fell 2.6 percent. Anglo American, Antofagasta, BHP Billiton, Kazakhmys, Xstrata down 4.5-8.4  percent. Meanwhile oil extended its decline, with crude  falling nearly 3.3 percent to $103.27 a barrel, pressured by  gains in the U.S dollar.  BG Group, BP and Royal Dutch Shell  were between 1.7 and 2.2 percent lower.

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Asian stock market summary

JAPAN
The benchmark Nikkei ended down 1.3 percent at 11,743.61, as investor caution about the implementing of a U.S. bailout plan for the financial sector outweighed initial relief that a deal was being done.
   
Major banks shed much of their gains or sank into negative territory, while blue-chip exporters such as Toyota Motor Corp fell sharply on worries about the global economic outlook.
  
The broader Topix lost 1.7 percent to close at 1,127.87.

SOUTH KOREA
The Korea Composite Stock Price Index closed down 1.35 percent at 1,456.36 as steep falls in the won fuelled worries about volatility in domestic financial markets, sending banks sharply lower and stoking concerns about foreign currency-related losses.
   
AUSTRALIA
The benchmark S&P/ASX 200 index fell 2 percent to 4,807.4, reversing earlier gains, as resource stocks came under pressure on ongoing worries about the outlook for global demand.
   
U.S. lawmakers finally reached a deal on a $700 billion bailout for the financial sector, but doubts are already creeping in as to how effective the package will be.
 
CHINA
China markets were shut for the National Day holiday.

HONG KONG
The Hang Seng index closed down 801.41 points or 4.29 pct at 17,880.68, off a low of 17,796.34 and high of 18,742.25.

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Gold slips as dollar, U.S. rescue weigh

LONDON - Gold slipped in Europe on Monday as expectations the U.S. government will receive approval for a $700 million bailout of its financial sector curbed safe-haven buying, and the dollar strengthened.

A $4 slump in oil prices is also pressuring gold, as weaker crude can undermine sentiment towards commodities as an asset class.

Spot gold was quoted at $873.85/875.85 at 0938 GMT, down half a percent from $878.40 at the nominal New York close on Friday. "Some of the flight to quality trade (in assets) like gold, like treasury bonds, even cash, is now being unwound," said Calyon metals analyst Robin Bhar. "There is a bit of short-term relief in the market."

"The dominating factor is the dollar," he added. A firmer dollar tends to weigh on gold prices, as bullion is often bought as an alternative to the U.S. currency when it is weakening.

The dollar climbed 2 percent against the euro as the financial crisis spread further outside the United States. News of a state buyout of Fortis Bank, and government intervention in ailing U.K. mortgage lender Bradford & Bingley, spooked the market.

The U.S. currency has also been supported by news that the U.S. Congress is close to agreeing a $700 billion bailout of the financial sector.

The other main external driver of gold, the crude oil market, is also wilting, shedding more than $4 a barrel at its session low and trading just above $100 a barrel.

Oil was pressured by gains in the U.S. dollar, which makes dollar-priced oil more expensive for holders of other currencies.

"In the crude oil market, participants have realised that the rescue package would not lead to a quick recovery of consumers demand," said Dresdner Kleinwort in a note. "Crude oil is trading lower again...., which is negative for gold."

Analysts said overall they see gold prices taking good support from ongoing financial uncertainty and prospects for a weaker dollar.

Barclays Capital director of commodities Jonathan Spall, speaking at the London Bullion Market Association's annual conference in Kyoto, said he belives a near "perfect storm" for gold may drive prices to within record highs in the next six months.

Gold demand from both jewellers and institutional investors is expected to be supportive, with consumption of gold jewellery, coins and bars seen picking up significantly as prices slip to and below $850 an ounce.

Demand from gold-backed exchange-traded funds is also strong. Holdings of the world's largest bullion-backed ETF, SPDR Gold Trust GLD are at 724.63 tonnes, close to the record levels they hit last week.

Jeremy Charles, head of the LBMA and a gold trader at HSBC, told Reuters at the Kyoto conference that he expects private banks and institutional investors to buy more gold in the current climate.

Among other precious metals, silver slipped in line with gold to $12.91/12.99 against $13.29 at the nominal New York close on Friday. Platinum was at $1,107/1,119 an ounce against $1,108 an ounce, while palladium fell more than 1 percent to $218/224 against $221.

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