US & World Daily Markets Financial Briefing 06-02-2009

US STOCKS-Wall St rallies as data fuels stimulus optimism

NEW YORK - U.S. stocks rose on Friday as investors bet news of the deepest cut in U.S. nonfarm payrolls in 34 years last month would jolt Washington to act quickly on delivering an economic stimulus.

Investors view a stimulus as crucial in lessening the blow from a deepening recession and sliding corporate profits.

Buying into a broad range of sectors underpinned the market's advance but technology and financial shares were by far the biggest standouts. Bank of America shares jumped 15 percent while Apple Inc rose 1.6 percent.

The S&P financial index rose 4.7 percent, while the semiconductor index gained 1.8 percent. Home builders also headed higher, sending the Dow Jones home construction index up over 6 percent.

"As we've seen in the past couple of months, the stock market has shrugged off a lot of bad news in hopes that the market has discounted the situation," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

"Investors have hopes that the steps taken in Washington D.C. are going to help a second-half recovery."

The Dow Jones industrial average jumped 134.76 points, or 1.67 percent, to 8,197.83. The Standard & Poor's 500 Index shot up 12.45 points, or 1.47 percent, to 858.30. The Nasdaq Composite Index gained 24.90 points, or 1.61 percent, to 1,571.14.

The S&P 500 is now off about 5 percent since the start of 2009, but has risen 14.2 percent since the bear market low hit in November.

U.S. nonfarm payrolls in January were slashed the most since December 1974 as the recession deepened, sending the national unemployment rate to 7.6 percent.

Among financial shares, Bank of America rose 15.3 percent to $5.58 after an influential bank analyst said the stock was a strong "buy." JPMorgan climbed 6.7 percent to $26.18 as Citigroup added 8.2 percent to $3.82.

Aon Corp shares rose 11.8 percent to $40.75 after the insurance brokerage posted an operating quarterly profit above Wall Street's expectations.

Shares of big manufacturers also headed higher, with Caterpillar, up 4.3 percent at $32.98, among the Dow's top boosts. Lawmakers are set to resume work on Friday on a stimulus measure, a day after U.S. Senate Majority Leader Harry Reid halted debate on a $937 billion rescue bill late on Thursday.

U.S. President Barack Obama has urged members of the Senate as well as the House of Representatives to resolve their differences and get a final bill to him within a week or so.

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Sterling pares gains on weak UK industrial output

LONDON - Sterling pared gains against the euro and the dollar on Friday after data showed UK industrial production fell at its sharpest annual rate since 1981 in December.

However, it continued to hover near an earlier two-month high against the euro as it benefitted from a growing view that UK rates are near their trough.

The Bank of England cut interest rates by 50 basis points on Thursday to a historic low of 1 percent, while the European Central Bank left euro zone rates on hold at 2 percent.

Although this widens the interest rate differential between the two, market players were encouraged by the BoE's proactivity and were at the same time concerned that the ECB will need to play catch-up in the coming months.

"Sterling has seen a minor bounce lower following the data, but this is only likely to be temporary and it will continue to regain ground, particularly against the euro," BNP Paribas currency strategist Ian Stannard said.

"It is basically a case of central bank credibility and it is no longer a straight mechanical interest rate differential argument," he said.

At 1206 GMT, the euro was down 0.1 percent on the day against the pound at 87.36 pence, having earlier dropped to its weakest since early December at 86.64 pence.

The ECB's much less proactive approach and fears that the euro zone economy could suffer a much deeper and more prolonged downturn than previously thought will keep the euro under pressure, Stannard added.

Against the dollar the pound rose 0.2 percent to $1.4641, below an earlier two-and-a-half week high of $1.4767. Sterling is on track for a second consecutive weekly gain against both the dollar and the euro. Against the dollar this has not happened since late November 2008.

Market focus meanwhile is centred on the release of key U.S. non-farm payrolls numbers at 1330 GMT and traders said many players were sidelined ahead of this.

Figures showed UK industrial output slumped by 9.4 percent year-on-year in December, resulting in a steep 4.5 percent fall over the final quarter and sparking fears that the economy may have contracted more than previously thought.

"The numbers are horrendously weak ... it certainly looks like it's right on the borderline of what is necessary to pull GDP down," JP Morgan Chase economist Malcolm Barr said.

The news overshadowed data showing UK producer prices were stronger than analysts had forecast in January, while further figures showed UK company insolvencies hit their highest since 1994.

There is a growing sense that the bad news is already priced into sterling after it slumped to a record low close to parity against the euro at the end of last year and a 23-year trough against the dollar last month.

"There was so much bad news priced into sterling and it was way oversold. Sentiment towards the UK economy is still very negative, it is just a case of things being just as bad everywhere else," Dublin-based AIB Group Treasury economist Geraldine Concagh said.

There was some hint of light at the end of the tunnel for the UK economy on Thursday, with Halifax reporting an unexpected 1.9 percent jump in house prices during January. Most economists doubt, however, that this will mark the start of a sustained recovery.

A confluence of factors including soaring job losses and falling consumer sentiment meant a 50 basis point interest rate cut had been fully discounted before the rate decisions, and many see a sizeable chance of another half point cut in March.

As interest rates near zero, investors are waiting to see if the BoE will resort to measures like quantitative easing, where central banks flood the banking system with money to keep official rates low enough to shore up the financial system.

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European shares higher at midday; eyes on U.S. data

FRANKFURT - European shares rose at midday on Friday on the back of gains on Wall Street and Japan, but investors remained cautious ahead of U.S. payrolls data due later in the day which is expected to be dire.

At 1209 GMT, the FTSEurofirst 300 index of top European shares was up 0.8 percent at 816.56 points. The pan-European index is down 2.2 percent this year, having lost 45 percent in 2008, hurt by a credit crisis that has pushed several of the world's largest economies into recession.

Banks added the most points to the index and the DJ Stoxx banks index .SX7P was up 2 percent. BNP Paribas, Barclays, Credit Suisse and HSBC rose between 1.9 and 6.2 percent. "There is a positive prevailing sentiment in the market, boosted by yesterday's gains on Wall Street and in Japan overnight," said Heinz-Gerd Sonnenschein, strategist at Postbank in Germany.

U.S. stocks rose on Thursday on hopes the government's plan to support the financial system will include a change in accounting rules that would stem bank writedowns, with President Barack Obama urging action on a $900 billion stimulus bill.

The Senate's Majority Leader Harry Reid said he was "cautiously optimistic" of it passing.

Across Europe, Britain's FTSE 100 and Germany's DAX were up 0.4 and 0.6 percent respectively, while France's CAC-40 gained 0.4 percent. "However, there is a certain nervousness in the market ahead of U.S. payrolls later today," Sonnenschein added.

The monthly non-farm payrolls data in the U.S., due at 1330 GMT, will give an indication on the extent of recession in the world's biggest economy and are expected to be awful, with forecasts of another 525,000 jobs being lost in January.

"There's not much to be optimistic about in the current earnings or in the economic data, which are dire," said Bernard McAlinden, strategist at NCB Stockbrokers in Dublin.

However, Postbank's Sonnenschein pointed to some positive newsflow from the corporate front. BMW, the world's largest premium carmaker, was up 7.4 percent after it met its reduced outlook for a clear 2008 profit although revenue declined as the credit crisis plunged global car markets into a tailspin.

Shares in world No.2 truck maker Volvo rose 12.6 percent despite it slipping to a surprise operating loss in the fourth quarter as plunging demand savaged orders. The company cheered investors by still being able to generate cash in the quarter.

Shares in Swiss bank Julius Baer dropped 20 percent on Friday on news that an anonymous letter had alerted Swiss authorities to irregularities. Julius Baer said the letter concerned only a "minor trading incident" last year.

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Asia Stocks Rise As U.S. Jobs Data Looms

Asian shares rallied Friday to hand weekly gains to most markets in the region, with shipping stocks leading for another day and miners rising on hopes demand for commodities might be picking up.

China's Shanghai Composite rallied 4%, delivering its best performance this week, on optimism the country's economy will be among the first to recover from the global downturn. The benchmark ended the week with nearly 10% gains as stocks rose across sectors.

"One can say China is a semi-open market, so it is less affected [by the global economic downturn] as compared to markets in the so-called capitalist countries. If there's a revival, they'll bounce faster. I don't expect a revival in the short-term but maybe in 2010," said Peter Lai, director at DBS Vickers in Hong Kong.

Japan's Nikkei 225 closed up 1.6%, South Korea's Kospi jumped 2.8%, Taiwan's Taiex climbed 2.5% and Hong Kong's Hang Seng Index added 3.6%, with each of them also posting weekly gains.

Australia's S&P/ASX 200 advanced 1.2%, while in afternoon trading India's Sensex gained 2.2% and Singapore's Straits Times inched up 0.6%. Still, having lost much ground earlier in the week, they ended or were set to close the week in the red.

"The more resilient tone to markets suggests a lot of bad news has been priced in already," said analysts at Calyon, noting the rise in U.S. stocks Thursday despite a downbeat report on weekly jobless claims. "The tone of improving risk appetite is likely to continue but the risks remain considerable, with significant potential for disappointment."

Some analysts warned Asia's gains might fade, especially with January U.S. non-farm payrolls on the slate later, forecast in a Dow Jones Newswires poll to show a loss of 525,000 jobs.

Markets were also awaiting progress on U.S. President Barack Obama's fiscal stimulus plan, while Treasury Secretary Timothy Geithner was expected to announce a bank rescue plan on Monday.

Shippers extend rally

Shipping and commodity stocks were helped by another surge in the Baltic Dry Index, a measure of shipping rates for dry bulk and an indicator of global demand. The index rose 13.8% Thursday and tallied gains of 28.4% in the past two days, though it's still well down from record levels hit in mid-2008.

But some analysts warned the BDI could overextend itself given a lack of fundamental evidence that China's demand for commodities has improved significantly. Some have said the BDI bounce might be due more to hedge funds covering short positions on forward-freight agreements.

Delta Asia's head of equities in Hong Kong, Conita Hung, said it wouldn't be wise to chase shipping stocks.

"My reading is this is more related to speculative interest, as the economic outlook remains sluggish and it's not logical to see such an uptrend," she said.

ANZ commodity strategist Mark Pervan added the rise in the BDI didn't necessarily mean a more positive tone for commodities. Aluminum and copper stocks in LME-approved warehouses were high and markets needed an inventory turnaround to confirm an improvement in demand, he said.

That wasn't stopping the shipping sector, however, with Korea's STX Pan Ocean (SPNOF) gaining 4.9%, while Nippon Yusen (NPNYY) added 1.2% and Kawasaki Kisen advanced 1.3% in Tokyo. In Singapore, Neptune Orient Lines (NPTOY) gained 1.6% by late afternoon, while STX Pan Ocean surged 7.5%.

There was a carryover effect on commodity stocks, with Australia's BHP Billiton (BHP) up 1.9% and Newcrest Mining (NCMGY) up 5.7%.

Other movers

Regional technology stocks were helped by a 2.1% rise in the Nasdaq Composite (RIXF) overnight, with Tata Consultancy Services climbing 4.6% and Wipro (WIT) adding 2.3% in Mumbai trading. Earlier in the day, Samsung Electronics (SSNLF) rose 4.6% in Seoul and Taiwan Semiconductor Manufacturing (TSM) jumped 5.4% in Taipei.

News Corp. (NWS) shares fell 4.1% in Sydney, though, and the stock dropped 4.9% after-hours in the U.S. The company, which owns Dow Jones & Co., publisher of the Wall Street Journal, Dow Jones Newswires and MarketWatch, swung to a fiscal second-quarter loss on $8.4 billion in write-downs, and it slashed its outlook for fiscal 2009 operating income.

Among Australian financials, National Australia Bank (NABZY) slipped 0.8% after it warned bad debts were on the rise.

Hong Kong's market was lifted by gains in China-related stocks, though PCCW (PCCWY) slipped 2.9% after resuming trade. Trading was suspended Thursday as officials with Hong Kong's Securities and Futures Commission said they would launch an inquiry into the voting results after shareholders approved a $2.1 billion buyout offer from a group led by its chairman Richard Li.

Shanghai posted across-the-board gains, with auto stocks faring especially well, after a Shanghai Securities News report that Beijing might subsidize farmers' vehicle purchases. SAIC Motor added 4.9%.

Malaysian shares were up 1.6% and Philippine shares 2.7% higher, while Indonesia's market rose 1.5% by late afternoon. New Zealand markets were closed for a holiday.

In currency markets the euro retained a mild downward bias amid concerns about the euro-zone outlook; it was recently around $1.2794, from $1.2798 late in New York, and at 116.70 yen, from 116.76 yen.

The U.S. dollar was trading near 91.17 yen, versus 91.18 yen in New York and off an overnight high of 92.25 yen.

February gold futures fell 60 cents to $913 a troy ounce, with front-month Nymex crude oil down 46 cents to $40.71 a barrel on Globex.

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Oil falls below $40/bbl; economy weighs

LONDON - Oil dropped below $40 a barrel on Friday as a weakening global economy overshadowed OPEC's attempts to curb crude supply and boost prices.

U.S. non-farm payrolls numbers due at 1330 GMT are expected to add to the gloom, after data released the previous day showed applications for U.S. jobless benefits hit a 26-year high.

U.S. light crude for March delivery fell $1.25 to $39.92 a barrel by 1228 GMT, while London Brent, which usually trades below its U.S. counterpart, fell 71 cents to $45.75.

U.S. crude is trading well below Brent as inventories in Cushing, Oklahoma -- the delivery point for the U.S. crude contract -- are at record levels. U.S. crude for delivery in two months time is trading just under $45 a barrel.

The global economic slowdown has curbed demand for fuel around the world, knocking oil sharply lower since it peaked at almost $150 in July.

The head of Italy's largest oil firm predicted on Friday that oil could stay as low as $40 for the rest of 2009. "A price of $40 a barrel, it's roughly my forecast for this year," Eni Chief Executive Paolo Scaroni said.

That level is too low for members of the Organization of the Petroleum Exporting Countries to generate enough revenue or encourage investment in new supply.

In a bid to boost prices, OPEC agreed to cut a further 2.2 million barrels per day (bpd) from January. The reduction comes on top of curbs of 2 million bpd in place since September.

OPEC sources have indicated the group could cut a further 1 million bpd from output when it next meets on March 15.

"These are significant output cuts and if they can implement more then we should see global stock cover start to come down. Until then prices seem well supported above $40 a barrel by the cuts so far," said Julian Keites at Newedge.

U.S. Democrats in the Senate on Thursday pushed towards passage of a huge economic stimulus package despite scant Republican support, hoping to boost the U.S. economy, which could help stem a decline in fuel demand.

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