US & World Daily Markets Financial Briefing 13-01-2009

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US STOCKS-Wall St flat as energy offsets Citi worries

NEW YORK - U.S. stocks were little  changed on Tuesday as investors followed a two-day slide by  snapping up energy shares on a recovery in oil prices while  hopes for more funds to stabilize credit markets offset worries about Citigroup's outlook.
  
A day after Alcoa Inc kicked off what investors fear  will be a bleak fourth-quarter earnings season with an
unexpectedly large loss, investors scoured the market for  beaten-down shares, sending sectors like energy and technology  higher.
   
Shares of Chevron Corp climbed more than 2 percent  while rival Exxon Mobil Corp also rose. But a broad  advance was limited by a fall in shares of financial services companies as investors fretted about the possibility of more credit losses and uncertainty over Citigroup's outlook.
   
Hopes that Washington would work speedily on a plea by U.S. President-elect Barack Obama for the remaining $350 billion of  financial rescue funds to stabilize credit markets helped underpin sentiment, however.
   
"Obama is in a much better position to work with Congress than the previous administration," said Gail Dudack, chief investment strategist at Dudack Research Group in New York. "The market wants to see some very pragmatic action, and Obama is trying to do that."
   
The Dow Jones industrial average dipped 12.58 points, or 0.15 percent, to 8,461.39. The Standard & Poor's 500 Index inched up 0.30 points, or 0.03 percent, to 870.56. The Nasdaq Composite Index gained 7.87 points, or 0.51 percent, to 1,546.66.
   
Chevron shares rose as high as $72.70 on the New York Stock  Exchange before slipping back to be up 1.4 percent at $71.82,  while Exxon Mobil climbed 1.6 percent. On Nasdaq shares of  Microsoft climbed 2.1 percent to $19.89.
  
Investors drew comfort from comments by Federal Reserve  Chairman Ben Bernanke that the government could consider buying  troubled assets. News the U.S. trade deficit had its biggest  contraction in 12 years in November also lent support.
   
"Trade numbers came out a bit better than expected, which  is also helpful because of course trade numbers are a piece of  the gross domestic product," said Dudack.
   
Embattled U.S. bank Citigroup is pushing ahead with a plan  to sell a controlling stake in its Smith Barney retail  brokerage, a crown jewel, and analysts suggested it must be  urgently seeking to replenish capital due to mounting losses.
   
Citigroup shares were down 3.8 percent to $5.39 on the New  York Stock Exchange. U.S front-month crude was up $1.15  at $38.70 a barrel.
   
Obama, who is due to be sworn in on Jan. 20, is pushing for  Congress to release the remaining $350 billion of the $700  billion financial industry bailout. Obama wants the aid to go to consumers threatened by home mortgage foreclosures and plans  to meet Tuesday with Senate Democrats to seek their support.

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Sterling knocked by caution on risk, dismal data

LONDON - Sterling gave up further ground against the dollar, euro and yen on Tuesday as worries about global economic health sparked fresh waves of risk aversion, pressuring the pound as investors favoured lower yielding units.

Fears of steep losses at corporate bellwethers from Citigroup slapped Asian shares lower on Tuesday. European stocks fell for a fifth straight session, signalling the extent of the global economic slowdown and bolstering less risky assets such as government debt.

Country risk was also on the radar with Greece, Ireland, Spain and New Zealand all being put on credit watch for possible ratings downgrades. Intra-euro zone government bond spreads blew out to their widest since the euro's launch as investors piled into the relative safety of German Bunds.

The severity of Britain's crisis was stark. The Office for National Statistics said that the goods trade deficit grew to 8.330 billion pounds in November from October's downwardly revised 7.631 billion, the biggest since records began in 1697.

"The worse-than-expected trade figures added to sterling's negative sentiment," said Audrey Childe Freeman, currency strategist at Brown Brothers Harriman. "The data suggest the weakness in sterling is not translating into improving the UK trade position ... and external demand will continue to provide a negative contribution to growth."

By 1020 GMT, sterling was down 1 percent on the day at $1.4671, having earlier fallen to a one-week low of $1.4612 after the trade data was released.

The euro gained 0.5 percent to 90.65 pence with dealers citing some central bank buying of euro/sterling for reserve management purposes. However, the common currency was pressured elsewhere on expectations that the European Central Bank will cut interest rates later this week.

Risk aversion also saw sterling fall 1.1 percent versus the yen to 130.58 yen. "There seems to have been a bit of a pick-up in risk aversion and that's being reflected in other majors as the yen is up today," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

Earlier figures from the British Retail Consortium showed UK retail sales in December fell at the fastest pace on record for the key Christmas shopping month.

The BRC said like-for-like retail sales fell for a seventh consecutive month and by 3.3 percent on a year ago in December, compared with a 2.6 percent fall in November. The British Chambers of Commerce said businesses are facing their toughest conditions in more than two decades.

Analysts said deleveraging across other asset classes including stocks and oil, reflecting a pick up in fear, could keep most currencies except the dollar and yen on the backfoot.

"Given the likely preponderance of bad economic news through the week it would make sense to stay long the USD and JPY, and short pretty much everything else," said Daragh Maher, senior currency strategist at Calyon, in a note to clients.

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European shares slide on grim economic prospects

FRANKFURT - European shares fell for the fifth session in a row on Tuesday, led down by financial and mining stocks, as worries grew about the impact on corporate earnings of an increasingly gloomy economic outlook.
      
"We are today in a global recession and fears of a depression are still hanging over us," Michala Marcussen, head of strategy and economic research at Societe Generale Asset Management (SGAM) told a briefing for investors in Frankfurt.
      
"(The) recovery will be very slow," she said. At 1200 GMT, the FTSEurofirst 30 index of top European shares was down 2.6 percent at 831.01 points, having hit 828.68 points earlier -- a level below its 2008 close. The benchmark lost 45 percent in 2008.
      
"It's a downturn in risky assets, another round of profit-taking on equities," said Alain Bokobza, head of pan-European equity and cross-asset research at SGAM.
      
Morgan Stanley Global Wealth Management said the MSCI equity indexes, including MSCI Europe, traded below their 10-year averages measured by price-to-earnings (P/E) and price-to-book (P/B) ratios, but that stock markets looked unlikely to recover any time soon.
      
"European equity market valuation indicators remain depressed, with a catalyst to improve the economic outlook still missing," Morgan Stanley said in an asset allocation report. "The bottoming process for equities will be drawn out over a multi-month time period," it said, adding: "Equity markets will  remain volatile and somewhat fragile due to the severity of the credit crisis."
      
Mining shares led the slide in Europe as copper prices fell 4 percent, dragging all industrial metals lower, and gold prices hit one-month lows. Rio Tinto, which is due to release quarterly  production data on Thursday, was down 6.4 percent after the company shelved a $229 million plan to extend a copper mine in Australia.
     
U.S. Alcoa posted a wider-than-expected loss late on Monday as the global economic slump dampened demand for aluminium products. The DJ Stoxx basic resources index was down 4.9 percent, making the sector the weakest performer in Europe.
      
"Metals prices continue to fall ... Economic indicators continue to point to worsening economic growth," Fairfax said in a daily market report.

Shares in A.P. Moller-Maersk, the world's largest container shipping line, which is strongly exposed to world trade flows, fell 2.3 percent after the company's chief executive said 2009 "will be very tough" and that "if an improvement comes before the end of 2010, we will be positively surprised."
      
On the economic data front, Chinese exports fell 2.8 percent in December and imports slumped 21.3 percent, according to the country's General Administration of Customs. Commerzbank said China's full-year 2008 oil imports grew at their lowest rate for three years and that the price of crude oil could fall further.
      
"After a week of disruption to supply, gas should cross the Ukraine to Europe again today. The nearing end to the conflict (over gas between Russia and Ukraine) should push the oil price down near term, since the risk premium will drop," Commerzbank said in a note.
      
Bokobza said oil shares were trading at a 35-year high relative to the broader stock market and that the sector was "one of the few negative bets I would hold for this year." With crude oil prices down more than 2 percent at less than $37 a barrel, energy stocks suffered. Total was down 1.8 percent, BP 1.2 percent lower and StatoilHydro fell 4.8 percent.
      
Financials were mainly weaker, with Britain's Barclay's  down 12 percent and Royal Bank of Scotland 6.4 percent lower. The DJ Stoxx bank index lost 4.4 percent and the insurance sector dropped 4.7 percent.
      
"UK banks have rallied in expectation of the next leg of Government support which is imminent but we stay with the view that the scale and pace of deterioration in the UK economy ... suggests that the risk of further capital being required remains significant," NCB Stockbrokers said.
      
Shares in Belgium-based financial services group Fortis  shot up more than 20 percent on market speculation the Belgian state would make a bid, hot on the heels of talk that investors might receive better terms in a potential partial sale of assets to French bank BNP Paribas.
      
In Britain, a trio of surveys showed the country has entered its deepest recession since at least the 1980s.  Shares in Tesco rose 1 percent after Britain's biggest retailer said it was growing market share across a range of non-food items and that sales, excluding fuel, at British stores open for at least a year rose 2.5 percent in the seven weeks to Jan. 10.

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Indian shares fall 0.4 pct; Infosys climbs 6.4 pct

Indian shares fell 0.4 percent on  Tuesday in seesaw trade, indicating fragile investor sentiment  ahead of quarterly results but Infosys Technologies Ltd  bucked the trend on strong earnings.
      
Bellwether Infosys, India's second-largest outsourcer,  rallied as much as 7 percent after it beat expectations with a one-third jump in quarterly net profit.
   
Smaller rival Satyam Computer Services Ltd, which  is at the centre of an accounting fraud, closed down 9.2 percent  at 31.25 rupees as investors awaited a new government-appointed  board to put the firm back on track.
   
The stock had jumped 44 percent on Monday after plunging 94  percent in the previous two sessions.  Traders said quarterly earnings would be the key factor for  the market in the coming days. The 30-share BSE Index closed down 0.42 percent or  38.69 points at 9,071.36, with 16 of its components falling.
   
"The market will now react to earnings of each of the index  stocks as numbers keep coming, because nobody knows what to  expect," said Miten Mehta, fund manager with Bell Wether Capital.
  
The focus will now turn to bank stocks with India's second  largest private lender, HDFC Bank, set to announce results on Wednesday. "Banks are expected to do well... compared to others," said  Mehta. 
   
Kotak Institutional Equities said in a preview banks would report net profit growth of 20-30 percent on good credit demand,  enhanced pricing power and gains from lower yields of government  securities.
  
However, earnings for most other sectors are expected to have been dented by falling consumer spending and a slowing economy. In a recent note, Morgan Stanley cut India's growth rate in the current fiscal year ending March to 6.7 percent from 7 percent, citing weak domestic and external demand. 
  
Infosys, which gets most of its revenue from exports, cut its guidance for the full year as a global downturn saw a squeeze on client contracts and prices. 
   
Still, its shares closed up 6.4 percent at 1,230.20 rupees as analysts saw the company's new business as encouraging. "One big positive was that volume (of business) in the third  quarter has gone up. It was a pleasant surprise for the market," said Amitabh Chakraborty, president (equities), Religare  Securities.
   
In the broader market, losers outstripped gainers by 1.8:1,  on good volume of 302.7 million shares. The 50-share Nifty index closed down 1.02 percent at  2,744.95 points.

The Hong Kong index turned negative in October 2008 for the first time since its launch in July 2006. Hong Kong's stock market got off to a strong start this year, after losing 48 percent in 2008, its worst performance since 1974, but has become volatile and is now down 5 percent this year.

The benchmark Nikkei fell 422.89 points to 8,413.91, its lowest close since Dec. 12 and its third straight trading day of losses, the biggest losing streak since mid-November.

The broader Topix shed 4.8 percent to 814.12.

The Korea Composite Stock Price Index closed up 0.95 percent to 1,167.71 points, up from the session low of 1,133.94  and snapping a three-session losing streak.

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PRECIOUS-Gold hits 1-month low as dollar, oil weigh

Gold hit one-month lows on Tuesday on a firmer dollar, weaker oil and faltering demand, but bargain hunting limited further losses.

Gold was quoted at $814.20/$815.60 an ounce at 1032 GMT, down from $819.35 an ounce in New York late on Monday, but off a one-month low of $813.80 an ounce.

Gold prices have fallen around 6 percent so far in January, after rising 8 percent in December. "The market has rallied up quite a lot in the last fortnight," Eugen Weinberg, a commodity analyst at Commerzbank, said. "We had short-covering ... index funds talking about re-weighting things and people got excited.

"Now we are back to reality where there is no demand and the market is drifting. We are coming back to where we should be in the first place."

The dollar was broadly firm, hitting one-month highs against the euro, as struggling equity markets cranked up demand ahead of a European Central Bank policy meeting on Thursday.

Adding to the underlying negative sentiment, U.S. crude fell towards $36 a barrel to its lowest level in three weeks as further signs the world economy was slowing dampened demand expectations. A stronger dollar tends to pressure gold, which is often bought as an alternative asset to the U.S. currency, while weaker oil prices reduce gold's appeal as a hedge against inflation.

Gold's losses were limited by buying interest from jewellers in Asia ahead of the Lunar New Year holidays later this month, dealers said.

The precious metal has bounced more than 20 percent since falling to a 13-month low around $680 in late October. It hit an all time high of $1,030.80 an ounce last March.

Also helping sentiment, Benguet Corp, the Philippines' fourth-biggest miner by market value, said it suspended exploration at a copper-gold project on the island of Mindanao due to a dispute with a local partner.

That was offset by Yamana Gold Inc, which said it would spend up to $350 million this year and $400 million in 2010 to boost production, while halving its dividend to help fund its expenditures.

However, physical demand, a key determinant of sentiment and prices, is seen coming under pressure over the next three months. "Reports of low physical demand from the key demand centres continues to be reported and this might extend for the next couple of months," Richcomm Global Services said in a note.

Platinum was quoted at $927/$937 an ounce, down from $956.00 at the New York close. Falling car sales in China added to the gloomy outlook for the auto industry, the largest user of platinum. Car sales fell 8 percent in December from the previous year, the country's official industry association said.

"We are looking for an opportunity to turn tactical buyers of gold -- but need to see jewellery and/or physical investment demand recover ... before we will do so," UBS said in a note.

New York gold futures GCZ9 were at $822.0 an ounce in electronic trading, down 0.6 percent. Silver was trading at $10.55/$10.63 an ounce versus $10.62 an ounce on Monday, while palladium was at $180.00/$188.00 from $184.00. Investors began to turn their attentions to the ECB, which is expected to cut key interest rates by 50 basis points to 2 percent on Thursday.

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