US & World Daily Markets Financial Briefing 05-09-2008

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Wall St. falls further on economic worry

NEW YORK - U.S. stocks extended losses on Friday, pushing the benchmark S&P 500 index down more than 1 percent, as a government report showing growing job losses in  August added to worries about the economy and profit outlook.
   
The Dow Jones industrial average slid 95.18 points, or 0.85 percent, to 11,093.05. The Standard & Poor's 500 Index dropped 12.08 points, or 0.98 percent, to 1,224.75. The Nasdaq Composite Index shed 20.64 points, or 0.91 percent, to 2,238.40.

US Aug payrolls fall 84,000; unemployment up to 6.1 pct, highest level in 5 yrs

WASHINGTON - The US unemployment rate rose to its highest level in nearly five years in August as the economy shed jobs for the eighth consecutive month, led by huge losses in the manufacturing, service and retail sectors, the Labor Department said today.
   
The economy lost 84,000 jobs in August, more than the 75,000 lost jobs economists polled by Thomson Reuters IFR Markets were expecting.
   
The economy has now lost 605,000 jobs since January. Economists have said the economy needs to create about 100,000 jobs each month to keep up with new workers, but with August's numbers, the economy has now averaged a monthly loss of about 23,500 jobs over the last 12 months.
   
Labor downwardly revised June and July payrolls by 58,000, for a cumulative two-month total of 160,000 jobs lost.
   
The unemployment rate, taken from a separate survey of households, rose sharply to 6.1% in August, the highest level seen since September 2003. Economists were expecting unemployment to rise to 5.8% from the 5.7% reported in July.
   
The official unemployment rate only includes workers who are actively seeking a job. The labor force participation rate, which includes the number of working-aged people with jobs, was unchanged at 66.1%.
   
Services jobs are usually a major factor in job gains, but 27,000 jobs were lost in this sector in August, the largest job loss seen in 5 years. Service-sector jobs have declined for the last three months.
   
Construction jobs fell once again, by 8,000, and manufacturing jobs lost 61,000, the largest drop since July 2003. Manufacturing jobs have not increased in 26 months. Retail jobs lost 19,900, and August was the ninth straight month of job losses in this sector.
   
Government added 17,000 jobs in the month and education/health services added 55,000. Average hourly wages rose 0.4% in August, slightly more than the 0.3% gain expected. That translated to a gain of 7 cents, putting the average hourly wage at $18.14.
   
The average workweek was unchanged at 33.7.

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FOREX - Dlr at 11-mth high vs euro; spotlight on US jobs

LONDON - The dollar surged to an 11-month high versus a weak euro on Friday, with traders continuing to buy the greenback ahead of the August U.S. employment report, while a flight from riskier carry trades lifted the yen.
   
Economic headwinds continued to shake broad market sentiment as escalating worries about global growth spooked investors, leading to a 3 percent slide on Wall Street on Thursday. A sell-off followed in Asia and European trading.
   
Market players said investors were exiting leveraged carry trades, or positions funded by borrowing yen at low rates to buy higher yielding currencies and commodities.
   
This trading pattern has until recently boosted the dollar too, as U.S. investors liquidate holdings of foreign assets and repatriate the funds back home.
   
Two reports Thursday on the U.S. labour market reignited fears that tightening credit conditions will herald another wave of economic weakness, turning all eyes towards the U.S. non-farm payrolls report at 1230 GMT.
   
Economists polled by Reuters expect that 75,000 jobs were shed in August, but a figure meeting those expectations, or even a slightly bigger fall, was not seen blowing the dollar's resurgence off course.
   
"You would need to see some significant triple digit number to really derail optimism that the U.S. is going to skirt the worst of the global downturn and accentuate the risk that the economy is in greater trouble," Rabobank strategist Jeremy Stretch said.
   
At 1108 GMT, the euro  was down 0.1 percent at $1.4235, having traded at its lowest since October 2007 at $1.4197. The dollar index was at 78.89, having traded at a year-high of 79.066 earlier on Friday.
   
Sterling  was steady at a tad higher at $1.7611, while the dollar  was down 0.1 percent at 106.25 yen. On Thursday the European Central Bank left interest rates on hold at 4.25 percent, as did the Bank of England at 5 percent.

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Europe shares fall on growth fears; eye U.S. data

FRANKFURT -  European shares fell for a third day on Friday with banks such as Barclays  and miners hit hard by fresh worries about slowing economic growth.
   
By 1115 GMT, the FTSEurofirst 300 index of top European shares was down 1.2 percent at 1,138.06 points. It lost 2.6 percent on Thursday after European Central Bank (ECB) staff projections showed a cut in euro zone growth expectations.
   
Data on Friday showed that industrial production in Germany fell 1.8 percent in July -- a steeper-than-expected decline, which heightened fears of recession in Europe's largest economy and the world's top exporter.
   
"There is no prospect of an early end to the current downwards trend," local bank Commerzbank said in a note, commenting on the German economic outlook. "Both the much gloomier business sentiment and the very weak trend in order intake lead us to expect production will continue to fall, reflecting weak demand from abroad -- especially from other euro area countries -- and the end of the domestic investment boom," Commerzbank said.
  
Across asset classes, traders, analysts, economists and investors awaited the release, at 1230 GMT, of U.S. non-farm payrolls for August -- key data for clues about the health of the world's largest economy.
   
The U.S. non-farm payrolls consensus estimate is for a loss of 75,000 jobs. "The downside risks to global growth remain firmly intact," U.S. investment bank Goldman Sachs said in a note. Risky assets such as stocks were under "severe pressure", it said.
   
In Europe, Barclays dropped 4.2 percent, Swiss bank UBS  fell 4.1 percent and Royal Bank of Scotland  traded 3.6 percent lower. The DJ Stoxx European bank index fell 1.9 percent. "The ongoing economic downturn now poses a serious obstacle for a recovery of the financial system," said Gertrud Traud, chief economist at German bank Helaba.
  
Lehman said the structured credit crisis was by now "largely complete in terms of writedowns" but commercial credit crises were "just beginning" and could cost European banks "up to twice as much in terms of provisions over the next three years".
   
Giuseppe-Guido Amato, strategist at brokerage Lang & Schwarz, said Thursday's rule change on collateral by the ECB brought the problem of asset valuation back into the spotlight. "The banking sector has cancer and it may be lethal," Amato said, referring to new rules to toughen up on the assets banks can submit in central bank lending operations.
   
"There is a vicious cycle at work here. First there are rumours of problems (at a bank), then writedowns, then a capital increase, then repeated new problems," he added.
   
Justin Urquhart Stewart, director at 7 Investment Management, said investors were still "shell-shocked" after remarks on Thursday by Bill Gross, chief investment officer at Pimco, urging the U.S. government to allow the Treasury to buy debt and other assets to halt a "financial tsunami".
  
Away from financials, shares in mining companies slumped as the price of copper dropped more than 3 percent to its lowest level in more than seven months. Gold prices also fell.
   
Kazakhmys  sank 4.9 percent, Anglo American  fell 4 percent and Rio Tinto  was down 3.9 percent. The DJ Stoxx European basic resources sector, which includes miners, fell 3.2 percent.

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Asian stock market summary

JAPAN
The benchmark Nikkei 225 Stock Average tumbled 2.8 percent to 12,212.23, after weak data raised worries about the job market and consumer spending in the U.S.
  
Investors were looking ahead to the U.S. non-farm payroll report for August later on Friday, which will likely show a drop in payrolls for the eighth straight month.
  
The stronger Japanese yen also sapped investor appetite for export-oriented shares, as a firmer yen raises worries about exporters' earnings overseas. The broader Topix index fell 2.6 percent to 1,170.84.

SOUTH KOREA
The Korea Composite Stock Price Index closed 1.55 percent lower at 1,404.38 points, with exporters retreating on global economy worries, but Samsung Electronics climbed 1.2 percent on speculation it could make a bid for U.S. memory maker SanDisk.

CHINA
The benchmark Shanghai Composite Index closed down 3.29 percent at 2,202.45, following steep losses on Wall Street as a rise in jobless claims and weak consumer spending data heightened concerns about the US economy.
   
News of a large IPO from China Merchants Securities and a new rule on share sales that will shorten the IPO lock-up period further dampened sentiment. Property developers and nonferrous metal stocks led a broad-based decline.
   
The Shanghai A-share Index was down 3.29 percent at 2,311.63, and the Shenzhen A-share Index fell 3.76 percent to 636.67.
   
The Shanghai B-share Index fell 2.67 percent to 147.11, and the Shenzhen B-share Index was down 2.98 percent at 363.46.

AUSTRALIA
The benchmark S&P/ASX 200 index was 1.8 percent lower at 4,887.1, but off earlier lows, as a sharp drop in the Australian dollar was seen boosting the earnings outlook for miners and other exporters.

TAIWAN
The weighted index closed down 1.64 percent at 6,307.28 following a sell-off on Wall Street. Margin call pressure also dragged down local stocks, with large-cap financial and technology firms among those getting hit.
   
The construction sector bore the brunt of the selling pressure as it lost more than 5 percent amid a weak property market outlook.

HONG KONG
The Hang Seng index closed down 456.20 points or 2.24 pct at 19,933.28, off a low of 19,708.39 and high of 19,987.15. For the week, the index is down 1,328.61 points or 6.25 pct.

INDIA
India's benchmark stock index, the Sensex of the Bombay Stock Exchange, sank 415.27 points or 2.79 percent to 14,483.83, down 0.55 percent compared with last week's closing figure. The National Stock Exchange's S&P CNX Nifty fell 95.45 points or 2.15 percent to 4,352.30.

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