US & World Daily Markets Financial Briefing 08-01-2009

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US STOCKS-Wall St drops on Wal-Mart, spending fears

NEW YORK - U.S. stocks fell on Thursday as  disappointing December sales and a dim outlook from Wal-Mart  Stores Inc heightened worries over consumer spending  and a worsening recession. Shares of Wal-Mart, the world's largest retailer, slid  nearly 9 percent to $50.55 on the New York Stock Exchange,  making it the Dow's top drag.
   
Wal-Mart offered the starkest indication yet that consumer  spending, which accounts for about two-thirds of U.S. economic  activity, continues to falter as households fret about mounting  unemployment and dwindling savings.
   
Analysts had thought cut-price retailers like Wal-Mart  would fare better than more up-market outlets as cash-strapped  consumers stretch their dollars in a tough economy. The S&P  retail index fell 2.1 percent.
   
"The Wal-Mart news shows how difficult the economic  environment is," said Alan Lancz, president of Alan B. Lancz &  Associates Inc, an investment advisory firm based in Toledo,  Ohio. "Whether it's earnings or pre-announcements it's not your  typical scenario. Any kind of recovery is going to be anemic."
   
The Dow Jones industrial average slid 100.27 points,  or 1.14 percent, to 8,669.43. The Standard & Poor's 500 Index  dropped 8.47 points, or 0.93 percent, to 898.18. The  Nasdaq Composite Index declined 11.70 points, or 0.73  percent, at 1,587.36.
  
The retail fallout hit shares of other consumer-oriented  companies, including hamburger chain McDonald's Corp,  whose shares fell more than 2 percent to $59.88.
   
Shares of home improvement chain Home Depot were off  2.4 percent at $23.99 and department store chain Macy's  declined 2.2 percent to $11.06 after it posted a December sales  drop and said it would close 11 money-losing stores.
   
Limited Brands, the parent of lingerie chain  Victoria's Secret, also disappointed, its shares falling 7.7 percent to $9.88 after it posted an unexpectedly big 10 percent  slide in December sales at stores open at least 12 months and  forecast fourth-quarter profit below analysts' estimates.
   
On the economic front, investors awaited U.S.  President-elect Barack Obama's speech on the economy at 11 a.m.  (1600 GMT).
  
With Thursday marking the market's 5th session of the new  year, a down day would fuel anxiety about its ability to push  ahead with a recovery from its Nov. 21 bear market low. According to the Stock Trader's Almanac January's first  five days act as an "early warning" on the year's prospects. Disappointing outlooks from Alcoa Inc and Intel Corp  and signs on Wednesday of mounting job losses sent
U.S. stocks to their worst tumble in more than a month.

Both the Dow industrial average and the S&P 500 have now erased  their gain for 2009. Even so, the S&P 500 is still up 19  percent since its Nov. 21 low.
   
A new Reuters poll of economists shows expectations for  Friday's U.S. nonfarm payrolls data have soured further, with  the consensus now calling for a loss of 550,000 jobs in  December and the unemployment rate to climb to 7.0 percent.

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FOREX-Dollar, yen rise on risk aversion, BoE in focus

The dollar and yen rose broadly on Thursday as falling share prices tempered demand for higher-risk investments, while the euro fell as dismal economic data kept concerns intact about the deteriorating euro zone economy.

Sterling slipped against the dollar ahead of a rate announcement by the Bank of England due at 1200 GMT. The central bank is expected to cut interest rates by 50 basis points or more from 2.0 percent in an attempt to buffer the UK economy from a deep recession.

The dollar built momentum versus higher-yielding currencies as worries about the global economy slapped oil prices down some 12 percent on Wednesday, pushing commodity currencies like the Australian and New Zealand dollars lower.

This helped the U.S. currency recover some losses suffered in the previous session due to a disastrous reading of U.S. employment, but the dollar fell against the yen, which benefited from risk aversion as share prices in Asian and Europe fell.

Figures on Wednesday showed a 693,000 cut in U.S. private jobs in December, hitting home the view the U.S. economy is deteriorating fast with global reverberation. "This is a risk aversion-type story as the yen is doing well and the dollar is doing ok too," said Geoff Kendrick, senior currency strategist at UBS in London.

"But we may be getting close to a level of expectation where people become slightly too pessimistic. The ADP pushed people in terms of view on payrolls, but i wouldn't be surprised if we saw -300,000 or -400,000 tomorrow," he added.

By 1109 GMT, the dollar  was up 0.3 percent against a currency basket to 82.419. Yen strength pushed the euro down 1.5 percent to 124.32 yen, while the dollar was down 1 percent at 91.60 yen.

The euro fell 0.4 percent to $1.3578, edging towards a three-week low around $1.33 hit earlier in the week. Sterling was down 0.3 percent at $1.5069.

Selling in the euro picked up following figures showing an unprecedented 10.6 percent month-on-month fall in German exports in November as global demand for cars and other manufactured products have plummeted due to a global recession.

A series of weak euro zone economic data further fuelled the view that the recession is deepening, which may require faster interest rate cuts by the European Central Bank. The euro zone's business climate declined much more than expected to an all-time low in December.

"This is yet another economic indicator that will strengthen the case for the ECB not to wait until February before cutting interest rates again," said Audrey Childe-Freeman, senior currency strategist at Brown Brothers Harriman in London.

The dollar rallied roughly 1.5 percent against the Australian dollar to $0.7010. The Aussie sold off after a hefty fall in Australian building and trade data reinforced the case for more rate cuts in the country.

Commodity currencies have also come under selling pressure due to falling oil prices, which have taken a hit on the view that a slowing global economy will decrease demand for oil.

U.S. crude oil prices fell 0.5 percent to $42.38 per barrel, extending losses after dropping more than 12 percent in the previous session. This helped to push the New Zealand dollar down 1 percent to $0.5845.

High risk aversion was also reflected the bond market, which rallied despite damp demand for new issuance around the world, and pushed the two-year euro zone government bond yield to its lowest since the early 1970s, according to market participants.

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European shares weaker; BoE cuts rate to 1.5 pct

European shares were lower at  midday on Thursday, with banks and miners the biggest fallers as  worries about the economy weighed, while the Bank of England cut  rates to 1.5 percent.
   
By 1232 GMT, the pan-European FTSEurofirst 300  index of top European shares was down 1.1 percent at 868.29  points, having been down as much as 863.04 points earlier.
  
The Bank of England cut interest rates by half a percentage  point to a record low of 1.5 percent as it battles to keep  Britain from falling into a deep and lasting downturn. This is its lowest level since the central bank was founded  more than 300 years ago.
   
"The size of the cut was widely expected and reflects the  sheer glut of bad news across the board, from the housing market  to manufacturing, services and on the high street," said Martin  Slaney, head of derivatives at GFT.
    
"Despite the historical nature of the Bank's move, it is  increasingly apparent that rate cuts alone may not be enough if  they do not stimulate lending. We are now in uncharted economic  territory," Slaney said.
   
In the euro zone, economic data showed that sentiment set  record lows in December amid rising unemployment, while  inflation expectations tumbled, further strengthening the case  for a deep European Central Bank rate cut next week. 
   
"We are slowly beginning to realise just how bad things are  getting," said Neil Parker, strategist at Royal Bank of  Scotland. "It wasn't just the eurozone unemployment indicator.  The Spanish unemployment data demonstrates how badly that  economy is beginning to suffer.
   
"There were a whole load of confidence indicators, and all  of them were worse than expected. Hopefully, sooner or later,  the ECB will wake up and they will cut rates much more than they  have so far," Parker said.
   
Spanish unemployment rose more than expected in December to  top 3 million for the first time in over 12-years. Banks were the biggest fallers on the index, although stocks  within the sector were mixed. 
   
HSBC, Standard Chartered, Credit Suisse  and Deutsche Bank lost 1.3 percent to 2.9  percent, while UK banks Barclays, Lloyds TSB  and HBOS were up 1.2 percent to 2.5 percent. 
   
RBS gained 3.8 percent after the Financial Times  reported that it is mulling a sale of its 4.3 percent stake in  Bank of China as part of a widespread review of its  international assets. An RBS spokeswoman declined to comment. 
   
Miners fell back as metal prices retreated with copper  down 1.4 percent. Anglo American, BHP Billiton, Rio Tinto  and Xstrata fell back 3.85 percent to 7.25  percent.
 
There were only a few gainers on the upside. Energy stocks were the biggest risers as crude gained 2.2 percent. BP,  Royal Dutch Shell and Total were up 0.5  percent to 1.2 percent. 
   
Volkswagen's was 2.7 percent higher after the  group's premium brand Audi hit the 1 million mark in vehicle  sales last year as promised, brushing off a slump in the global  car market to notch its 13th straight year of rising volumes. Across Europe, the FTSE 100, Germany's DAX  and France's CAC 40 were down 1.1-1.5 percent.

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Hong Kong shares close down 3.8 pct led by China banks, resources, Lenovo

HONG KONG - Share prices closed sharply lower as China banks fell for a second day on concerns over share sales by strategic investors and commodity stocks tumbled after a big drop in crude oil prices overnight.
   
Steep falls on US and mainland bourses and profit-warnings by locally-listed companies, including Cathay Pacific Airways and Lenovo Group, also weighed on investor sentiment.
  
Lenovo, China's top personal-computer maker, plunged 26 pct after it said it expects to post a loss for its fiscal third-quarter ended December and that it plans to shed 11 pct of its global workforce.
  
Cathay Pacific slumped over 7.6 pct after the Hong Kong flag-carrier warned of "disappointing" 2008 results due to lower revenue and fuel hedging losses.     Bank of China (BOC) lost over 8 pct after news that an entity controlled by tycoon Li Ka-shing sold 2 bln shares of the Chinese lender. A media report said Royal Bank of Scotland is also considering selling its holdings in BOC.
   
China Construction Bank (CCB) slipped more than 4.4 pct, extending its 8.7 pct fall yesterday, after Bank of America cut its stake earlier in the week.     China telecom firms saw continued profit-taking after Beijing issued long-awaited 3G licenses yesterday.
   
The Hang Seng index closed down 571.55 points or 3.81 pct at 14,415.91, off a low of 14,334.15 and high of 14,755.81. The index has shed 7 pct since yesterday. Turnover was 55.52 bln hkd. "Our market has been overbought of late, driven mainly by unsubstantiated hopes that the global economy will recover faster than what many analysts had expected," said Ben Kwong, chief operating officer at KGI Securities.

"It appears that scores of big players have misled many retail investors into believing this 'faster-recovery' story and they have now sold stocks in a big way for quick profit at the expense of small players," he said.
Kwong said there is no evidence yet that the global economy will recover anytime soon.
   
On the contrary, there has been more negative economic data and poor corporate earnings news around the world, pointing to extended weakness in major economies, he said. US corporates laid off 693,000 jobs in December, up sharply from a revised 476,000 job losses in November and far more than what economists had estimated, a private-sector jobs report released overnight showed.
   
The report raised fears that non-farm payrolls data, due on Friday, will also be grim. "It may be fair to say that there's a bubble in the rally that we've seen since the start of the year," Kwong said, referring to the market's strong gains in the first two sessions of 2009.
  
Dealers said profit-warnings by Intel in the US and Cathay Pacific and Lenovo here have heightened worries about corporate earnings. Microchip maker Intel issued on Wednesday its second revenue warning on the fourth quarter, saying demand for personal computers was worse than anticipated previously.

The US firm said it will not be able to meet even its previously lowered fourth-quarter revenue forecast, made in November.
   
Cathay Pacific fell 0.74 hkd or 7.62 pct at 8.97 after it warned that its 2008 earnings will be disappointing due to weak revenues and hedging losses. Lenovo plunged 0.67 hkd or 25.97 pct to 1.91 after announcing that it is likely to post a loss for the December quarter and that it will lay off 2,500 employees to cut costs.
   
It said unprecedented global economic challenges have reduced demand for personal computers. The company said it will take a pre-tax restructuring charge of about 150 mln usd for the financial year ending March 2009, which would be largely reflected in fiscal fourth-quarter results.
   
Matthew Kwok, research head at Tanrich Securities, said he is bearish on the near-term prospects for the local bourse, expecting more profit warnings as the reporting season draws near.
   
China banks were hit by fears of more share sales by key investors following Li Ka-shing's sale of BOC shares and Bank of America's sale of some stake in CCB. BOC lost 0.18 hkd or 8.41 pct at 1.96 after Li Ka-shing Foundation, the charity arm of the tycoon, sold 2 bln shares of the Chinese lender at 1.98-2.03 hkd each.
   
Meanwhile, the Financial Times reported that Royal Bank of Scotland -- another strategic shareholder in BOC -- is considering selling its 2 bln stg stake in the bank amid a scramble by foreign investors in mainland banks to cash in their holdings.
   
CCB shed 0.18 hkd or 4.43 pct at 3.88. Bank of America earlier this week sold 5.62 bln shares of CCB at 3.92 hkd each, a big discount to its closing price on Tuesday. ICBC fell 0.27 hkd or 6.82 pct to 3.69 on worries of possible sale by strategic investors after a share lock-up period expires at end-April.
   
China Merchants Bank dropped 1.04 hkd or 7.06 pct to 13.70 and Bank of Communications lost 0.29 hkd or 4.9 pct at 5.63. "The decision of several strategic investors to sell shares in some China banks... served as a convenient excuse for big institutions to sell down mainland lenders," Kwong of KGI Securities said.
   
Mainland insurers were also sharply lower on profit-taking after recent gains. Ping An slumped 2.55 hkd or 6.02 pct to 39.80, PICC P&C fell 0.39 hkd or 8.97 pct to 3.96 and China Life lost 0.80 hkd or 3.27 pct at 23.65.
   
Among other blue chips, HSBC was down 1.0 hkd or 1.33 pct at 74, Hong Kong Exchanges & Clearing fell 5.35 hkd or 6.38 pct to 78.50 and Hutchison Whampoa was down 1.50 hkd or 3.51 pct at 42.55.
   
China telecom operators saw continued profit-taking after Beijing issued 3G licenses yesterday to China Mobile, China Unicom and China Telecom. China Mobile fell 2.45 hkd or 3.12 pct at 76, China Unicom tumbled 0.68 hkd or 7.4 pct to 8.51, and China Telecom lost 0.17 hkd or 5.61 pct at 2.86.
   
Oil producers fell sharply as crude oil prices tumbled more than 12 pct overnight following news of larger-than-expected energy stockpile buildup in the US.
  
The benchmark contract, light sweet crude for delivery in February, dropped 5.95 usd to settle at 42.63 usd a barrel on the New York Mercantile Exchange. CNOOC dropped 0.53 hkd or 6.71 pct to 7.37 and PetroChina slumped 0.39 hkd or 5.23 pct to 7.06 while refiner China Petroleum & Chemical Corp (Sinopec) also lost 0.30 hkd or 5.98 pct to 4.72.
   
Among metals and mining firms, Aluminum Corp of China (Chalco) slumped 0.47 hkd or 9.31 pct to 4.58, Jiangxi Copper fell 0.91 hkd or 12.43 pct to 6.41, Zijin MIning slipped 0.39 hkd or 8.19 pct to 4.37 and Angang Steel lost 1.18 hkd or 12.22 pct at 8.48.
   
Coal firm China Shenhua fell 0.62 hkd or 3.38 pct to 17.70. The Hang Seng China Enterprises index ended down 484.66 points or 5.88 pct at 7,760.02.

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PRECIOUS-Gold steadies as oil stabilises, U.S. data eyed

Gold steadied above $840 an ounce in Europe on Wednesday as oil prices stabilised after a 12 percent slide, and traders awaited key U.S. non-farm payrolls data due on Friday for fresh impetus.

Spot gold was quoted at $841.45/843.45 at 1020 GMT, against $842.20 an ounce in New York late on Wednesday. U.S. gold futures for February delivery GCG9 on the COMEX division of the New York Mercantile Exchange were up 80 cents at $842.50.

"At the beginning of the year people are trying to get into position, so many things surrounding the market are influencing gold at the moment," Afshin Nabavi, head of trading at Geneva's MKS Finance, said. "People are looking for direction." "We have held the $840 area quite well in the last couple of days," he added.

The main external driver of gold, the dollar, firmed a touch against the euro ahead of an expected interest rate cut from the European Central Bank next week. The euro softened after euro zone economic data came in weaker than expected. Sentiment figures fell by more than expected in December, while unemployment rose as expected.

"Worse-than-expected statistics should weigh on industrial metals' investment sentiment, including platinum group metals and perhaps silver, and possibly also propel the greenback higher against the euro," Standard Bank analyst Manqoba Madinane said. "We believe this should keep precious metals' downside risks elevated throughout the day," he added.

Oil prices, which weighed heavily on gold on Wednesday, stabilised after sliding 12 percent in the previous session on data showing a larger than expected rise in U.S. crude stocks. HSBC said it is raising its 2009 and 2010 gold price forecasts to $825 on expectations the faltering global economy will prompt investors to buy into the metal as a haven from risk.

The bank raised its 2009 gold forecast to $825 an ounce from $800, and its 2010 price view to $775 from $725, but left its long-term forecast at $700. "We believe gold will attract safe-haven buying from risk-averse investors this year, as economic uncertainties are likely to persist for the foreseeable future," HSBC analyst James Steel said in a research note.

The bank cut its 2009 price view for platinum by 15 percent, however. It sees demand falling as the economic slowdown hits industrial users of the white metal, such as carmakers.

Spot platinum edged up to $985/990 an ounce from $972.50 in New York late on Wednesday. The metal has held firm this week despite gold's fall and a spate of bad news from carmakers, the main buyers of platinum. "This relative strength is mainly attributable to the fact that the former price slump was exaggerated and the negative news was consequently already factored in," Commerzbank said.

"Furthermore, there is optimism at the moment that the rescue measures for the U.S. car industry and the various huge economic stimulus packages worldwide will bring a recovery in the demand for platinum in the medium term."

"The very weak car sales figures are therefore being overlooked near term," it added. Among other precious metals, silver was at $10.98/11.06 against $11.01, while palladium eased to $193.50/198.50 an ounce from $195.

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