US & World Daily Markets Financial Briefing 30-01-2009

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 US Stocks Move Higher After GDP

U.S. stocks opened higher on Friday, as gross domestic product data wasn't as bad as analyst expected, helping offset bad news on the earnings front.

The Dow Jones Industrial Average rose 32 points to 8180, while the S&P 500 added 3 points to 849. The Nasdaq Composite rose 10 points to 1518.

Stocks tumbled on Thursday after a record 14.7% plunge in December new home sales, along with disappointing corporate results, sent markets into a tailspin. The Dow Jones Industrial Average fell 226.44 points, the S&P declined 28.95 points and the Nasdaq Composite fell 50.5 points.

Analysts said the economic reports confirmed weak housing and a struggling economy. Many forecasters are looking ahead to next Friday's January jobless data with much trepidation. "There's a continuing drumbeat of layoff announcements every day. Everyone is bracing for a bad one," said Jack Ablin, chief investment officer at Harris Private Bank.

Friday's economic lineup also includes the Chicago purchasing managers index for January, due at 9:45 a.m. and consumer sentiment data for January due at 10 a.m. All times are Eastern.

Economists at Tullett Prebon G7 Economics said the market could get an unexpected shock from GDP data. "The economist consensus has already "discounted" a 5.5% decline in annualized Q4 GDP growth, which would mark a sharp deterioration versus the previous quarter's contraction of 0.5% and the weakest reading since 1982. However, the risk is that the consensus might not prove bearish enough," they said in a note to investors.

A handful of companies reported early Friday including Procter & Gamble (PG), which reported earnings for the second financial quarter at $1.58 vs. 98 cents a year ago. Honeywell International (HON) reported fourth-quarter sales at 97 cents vs. 91 cents a year ago.

Amazon.com, Inc. (AMZN) could be in focus after it reported late Thursday a surprise gain in earnings for the fourth quarter amid strong sales during the crucial holiday shopping period.

European shares fell in a volatile session on Friday as deal-related gains for BNP Paribas , Rio Tinto and Switzerland's Roche (RHHBY) were balanced by continuing fears over the economy as euro-area unemployment rose to 8% in December, a two-year high.

BNP rose in Paris after agreeing to a new deal to acquire parts of Fortis after the Belgian group's shareholders won a court battle to challenge an earlier deal.

Rio Tinto was higher after it announced a $1.6 billion deal to offload a potash project in Argentina and an iron-ore facility in Brazil to Companhia Vale do Rio Doce (RIO).

Meanwhile, Roche lowered its takeover offer for Genentech (DNA) to $42.5 billion and took the offer direct to shareholders. Shares were up slightly in Switzerland.

Asian shares fell on dismal economic data and corporate earnings. The Nikkei fell 3.3% after a record 9.6% plunge in December industrial output, while shares of Toyota Motor Corp. (TM) fell after saying its net profit sank 90% in the October-December quarter.

Crude-oil futures were up $1.53 at $42.96, while gold futures gained $17.70 to $922.80. The dollar was firmer overall against major counterparts, but gains were capped as investors embraced more risk, shaving off some safe-haven flows into the U.S. currency.

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Dollar Holds Gains Vs Euro Despite 4Q US GDP

The dollar held on to overnight gains against the euro Friday morning despite the release of weak fourth quarter U.S. gross domestic product data.

Economists had expected a sharper fall in the real GDP, which contracted at an annual rate of 3.8% in the last three months of 2008. As a result, the dollar had only a narrow decline on the report.

Friday morning in New York, the euro was at $1.2861 from $1.2961 late Thursday, while the dollar was at Y89.56 from Y89.84, according to EBS. The euro was at Y115.20 from Y116.47. The U.K. pound was at $1.4286 from $1.4331, and the dollar was at CHF1.1577 from CHF1.1530 late Thursday.

The euro fell to a one-week low overnight as traders cashed out of the risk rally that emerged over the course of the past week, encouraged by disappointing data.

The European Union's official statistics agency Eurostat Friday said the annual rate of inflation in the euro zone fell to 1.1% in January from 1.6% in December, near a decade low and well below economist expectations. It also reported that the euro zone's unemployment rate rose to a two-year high of 8.0% in December from 7.9% in November as more companies shed staff in an effort to survive the recession.

Euro weakness is helping the U.K. pound -- which hit a 23-year low versus the dollar in the previous week -- against the common currency and greenback. After falling as low as $1.3502 last week, the pound has stayed above $1.40 since Tuesday in New York.

The euro also came under pressure overnight after comments from European Central Bank President Jean-Claude Trichet. He told Bloomberg TV Wednesday he isn't excluding any policy action and said the bank won't be "hampered" in carrying out quantitative easing if it choses to do so.

Trichet however reiterated that the next important date is the ECB's rate setting meeting in March, adding that the ECB will have a lot of new information in the form of its own staff projections.

The euro's weakness is feeding into declines in emerging market currencies in Europe. The Hungarian forint keeps has been hitting new historic lows throughout Friday; recently the euro gained to HUF298.34. The Polish zloty is on the decline as well. The euro was recently at PLN4.4384 from 4.3920 late Thursday, while the dollar was at PLN3.4489 from 3.3440.

Meanwhile, the ruble sank to new lows Friday after the Russian government forecast a stagnating economy and its first budget deficit in a decade.

Finance Ministry officials told the Duma, or parliament, that the economy will stagnate at best this year. They also reported that the government will post a 2009 budget deficit of 6.1% of gross domestic product, the first shortfall since 1999.

The ruble edged to less than a ruble away from the new lower trading limit of RUB41.0 against a dollar-euro basket, set only last week. The Kremlin pledged again Thursday that it's prepared to defend the limit of the ruble's band as long as the price for oil, Russia's main export commodity, doesn't fall to $30 a barrel. Oil prices on Friday were trading at $42.16 a barrel in New York.

The overall fall in risk appetite and the effect of declining growth in countries like the U.S. is being seen in Latin American currencies as well.

The U.S. absorbs a little more than three-quarters of Mexico's exports, which bodes ill for the peso, noted Marc Chandler of Brown Brothers Harriman.

Mexican's peso is at historic lows against the greenback with waning domestic and foreign demand for Mexican goods. The dollar gained as high as MXN14.4240 Friday.

Canada Morning

The Canadian dollar is sharply weaker early Friday, as broad-based risk aversion and month-end position-squaring have combined to reverse the Canadian unit's rally of the past week. Sentiment toward the Canadian currency has also suffered from news of a greater-than-expected fall in Canada's November gross domestic product, which declined at a 0.7% monthly pace. Early Friday, the dollar was at C1.2348, from C$1.2232 late Thursday.

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European Stocks Mainly Lower, BNP, Rio Gain

LONDON -- European shares fell in a volatile session Friday as deal-related gains for BNP Paribas, Rio Tinto and Switzerland's Roche were offset by continued fears over the economy as manifested in unemployment hitting a two-year high.

The Dow Jones Stoxx 600 index dipped 0.1% at 190.70.

France's BNP Paribas gained, its shares adding 3% in Paris, as the bank agreed to a new deal to acquire parts of Fortis after the Belgian company's shareholders won a court battle to challenge an earlier deal. Under the revised agreement, BNP will take a much smaller stake in the Fortis insurance business than originally planned.

Other banks had a volatile session. Shares of Dexia fell 6.5% after it announced a loss of about 2.3 billion euros ($3 billion) in the final quarter of 2008 and said it won't pay a dividend for the year. It's also planning to cut 900 jobs and close its operations in several countries.

The French CAC 40 dropped 1.1%, falling back below the 3,000 barrier at 2,976.12 as economic data revealed another rise in unemployment.

The European Union's Eurostat agency said unemployment in the euro area rose to 8% in December from 7.9% in November. The latest reading represents a two-year high and compares to an unemployment level of 7.2% a year earlier. Inflation in the region, meanwhile, fell faster than expected, to a 1.1% rate in January from 1.6% in December.

The U.K.'s FTSE 100 fell 0.4% at 4,172.71 and the German DAX 30 lost 1.1% at 4,377.40. U.S. markets fell heavily on Thursday after more weak economic data and a further round of job cuts.

In other deal news, Switzerland's Roche (RHHBY) lowered its acquisition offer for Genentech Inc. (DNA) to $42.5 billion, or $86.50 a share, and went hostile by taking it direct to shareholders.

An earlier offer valued at $89 a share got spurned by biotech bellwether Genentech last summer. Shares of Roche climbed around 1%.

Meanwhile, shares of Rio Tinto (RTP) rose 4% in London. The company restarted its stalled asset sales program with a $1.6 billion deal to offload a potash project in Argentina and an iron-ore facility in Brazil to Companhia Vale do Rio Doce (RIO).

On a smaller scale, fund manager Henderson Group agreed to buy struggling rival New Star Asset Management in a deal valuing the firm at 115 million pounds.

Shares of Henderson rose 17% as New Star gained about 3%. On the earnings front, shares of Spain's Banco Popular fell 4.4%. The bank reported a 72% drop in fourth-quarter profit, missing market expectations due to soaring bad-debt provisions.

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Asian Shares End Mixed; Nikkei Finishes Below 8,000

Asian shares closed out the week on a mostly downbeat note Friday, with Toshiba Corp. plummeting by double-digits in Tokyo in a session that saw the main index down sharply after data revealed an unprecedented decline in monthly industrial production.

Investors in Tokyo were also wary of taking big positions ahead of key earnings results due after the close of trading from the likes of Honda Motor and NEC.

"Investors have been expecting bad news, but things are probably worse than expected," said Yoji Takeda, a fund manager with RBC Investment Management Asia. "Most results are below estimates or below expectations with big downward revisions for the fiscal year forecasts."

Regional market dispelled some the gloom as late session gains lifted shares in several markets, helping push indexes in Australia and New Zealand, among others, into positive territory.

Chinese shares in Hong Kong were the biggest regional gainers, lifted by talk Beijing may announce another round of stimulus measures, which may include an interest rate cut, when markets and businesses reopen Monday after a week-long holiday.

A record 9.6% plunge in Japan's December industrial output - worse than expected and following an 8.1% fall in November - hurt the Nikkei. Macquarie Research economist Richard Jerram described the results as "disastrous beyond belief. In the last two months you've already lost more output than you usually see through the whole course of a recession."

Shares of Toyota Motor Corp closed 4.1% lower at 2,925 yen, after the Nikkei newspaper reported its group operating loss for the year ending March 31 was likely to balloon to 400 billion yen from the 150 billion yen it projected just a month ago. It also reported that the company suspended operations at 11 of its 12 domestic plants Friday as part of production adjustments amid slumping sales.

"With all of today's headline figures coming in below consensus, it is now clear that the Japanese economy fell off a cliff in the last quarter," wrote Credit Suisse economists headed by Hiromichi Shirakawa in a note distributed Friday.

After the close of trading, Honda Motor Co. reported fiscal third-quarter profit had plummeted to about one-tenth of last year's level and its forecast profit for the full fiscal year ending March 31 of 80 billion yen, an 87% drop from the previous year's results.

Fujitsu, which also released results late afternoon, forecast a net loss of 20 billion yen, compared to its earlier forecast for 60 billion yen profit. Shares of Fujitsu were down 6.8%, while those of Honda fell 9.2%. Toshiba Corp., which warned of its first annual loss in seven years yesterday, ended 17.4% lower.

Japan's Nikkei 225 Stock Average ended 3.1% lower, or 257.19 points, to close at 7,994.05. Indexes in Australia and New Zealand recovered from a shaky start to end higher, with Sydney's S&P/ASX 200 rising 0.4% to 3,540.70, and Wellington's NZX-50 nudging up 0.2%.

South Korea's Composite Index ended down 0.4% at 1,1162.11. Hong Kong's Hang Seng Index rebounded from the red to end 1.2% higher, rising 161.8 points to 13,316.21. The H-shares index was up 2.6% to 7,187.47. Markets in China, Taiwan and Vietnam remained shut for the Lunar New Year.

In Hong Kong, shares of Bank of Communications were up 4.7%, and those of Ping An Insurances added 6%. Australian shares were cushioned by expectations that the central bank will slash interest rates 1-percentage point next week. Among big-name miners, Rio Tinto was up 3.5% while BHP Billiton slipped 0.5%.

Economists in South Korea were predicting double-digit declines from year-earlier levels in Korean industrial production for December, due out later Friday. Also dampening market sentiment in Seoul was North Korea's threat to scrap all political and military accords and nullify a maritime border in the Yellow Sea.

In other regional action, Malaysia's main index ended up 0.2%, Singapore's Straits Times index ended down 1.2%, while Thai shares ended +0.6%, and Philippine shares were off 1.9%.

Indonesia's Composite was up 0.3% and India's Sensex added 1% in late trade. The U.S. dollar was at 89.50 yen versus 89.84 yen in late New York trade. The euro was at 115.31 yen from 116.47 yen. Nymex March crude oil futures were at $41.60 per barrel, up 16 cents on Globex after falling in New York on weak U.S. oil demand, reflecting lower usage by refiners.

Spot gold was down $5.50 at $902.80 a troy ounce from New York levels. The tone for Asia trading was set overnight as more U.S. companies announced job cuts and enthusiasm for the government's stimulus package waned. U.S. pre-market futures were pointing to mostly positive start as the market awaits foruth quarter GDP data Friday. Dow futures were up 31 points and the S&P 500 were up 4.6 points.

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Gold Hits 16-Week High, Nears Key Resistance

Spot gold rallied to a three-and-a-half month high Friday on a mix of safe haven demand and short-covering. The rally took gold closer to a key resistance at $930 a troy ounce, which it may challenge later today, traders said.

At 1016 GMT, spot gold was trading at $919.50/oz, up 1.4%. It touched a high of $926.40/oz.

Silver followed gold's lead, rising 1.2% to $12.467/oz. Platinum was down 0.3% at $969.50/oz. Palladium was down 0.5% at $190.50/oz. "There is some speculative buying, ETFs are in the market, (and) there's short-covering," said Andreas Daniel, a senior trader at bullion house Heraeus Holding GmbH.

Exchange-traded gold funds bought around 15 metric tons of gold Thursday alone, said a London-based trader.

Fears of a prolonged global recession and insolvency in the banking industry have underpinned gold's volatile ascent over the past week, drawing investors looking for a safe haven. Grim economic data out of the U.S., Japan and Europe Thursday gave new life to those concerns, analysts said.

The strength of that demand was partly reflected in gold's ability to shrug off a stronger dollar, which is typically negative for gold.

Others speculated investors were buying gold in expectation that government fiscal and monetary stimuluses would create inflation down the road.

Low interest rates were also making gold more attractive, as they reduced the opportunity cost of holding gold. "Currencies aren't in favor and gold is," said the London-based trader.

Despite gold's strength Friday, traders were skeptical the metal could close above $930/oz, the high of last October. "Technically it's overdone but sentiment is carrying it at the moment," said a London-based trader.

The higher prices were also prompting physical selling, especially in Asia. Traders said physical investors may sell into the rally. "I think

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