US & World Daily Markets Financial Briefing 13-02-2009

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Markets cuts losses as techs advance

U.S. stocks cut losses on Friday, with the Nasdaq briefly turning positive as an advance in technology stocks offset another session of declines in the financial sector.

Britain's Lloyds Banking Group announced bigger-than-expected losses, dragging U.S. financial shares.

Qualcomm Inc, software companies lift Nasdaq

The Dow Jones industrial average fell 21.34 points, or 0.27 percent, to 7,911.42. The Standard & Poor's 500 Index  lost 2.52 points, or 0.30 percent, to 832.67. The Nasdaq Composite Index shaved 0.62 points, or 0.04 percent, to 1,541.09.

Treasurys Inch Up, With Eyes On Stimulus, Mortgage Plan

Treasurys rose slightly early Friday, pushing yields down as traders watched Congress' progress toward passage of the $789 billion stimulus package.

Two-year note yields fell 2 basis points to 0.91%.  Benchmark 10 year notes were little changed at 2.78%. Speaker Nancy Pelosi said a vote would be held in the House of Representatives later Friday, with expectations that Senate approval may follow closely.

Traders were also focused on a program under consideration by the Obama administration to subsidize mortgage payments for troubled homeowners, subject to an affordability test.

Also Friday, a report on February consumer sentiment was due at 10 a.m. Eastern time.

Treasurys were headed for a weekly gain, with two-year yields down from 0.98%, and 10-year yields down from 2.98%.

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FOREX-Yen, dollar fall broadly as equities rise; stg rallies

The yen and the dollar fell on Friday as world stock markets rose on hopes for a U.S. government programme to subsidise mortgages and as investors readied for a Group of Seven finance officials' meeting.

The British pound also rallied as investors squared market positions ahead of the weekend on concerns that G7 leaders may discuss the currency's weakness, even though finance ministers and central bankers are keen to avoid upsetting troubled financial markets with squabbles over exchange rates.

The dollar and the yen, which often show an inverse correlation to investors' risk appetite, lost ground to the euro and higher-yielding currencies as global equities rose ahead of the G7 meeting and a long weekend in the U.S.

"It's a risk-on day," said State Street FX strategist Lee Ferridge.

"Not that people are expecting a great deal from the G7 but there's that lingering thought they might come out with something substantial. They want to position in case there's a surprise out of G7 and that surprise would be that they come out with something significant."

European shares were up roughly 2.0 percent, buoyed by the latest U.S. plan which, in a major break from existing aid programs, would seek to help homeowners before they fall into arrears, sources familiar with the plan told Reuters.

A rising wave of U.S. mortgage delinquencies has saddled the global banking system with big losses that have led banks to recoil from lending, choking economies around the world.

By 1118 GMT the dollar had risen 0.7 percent to 91.51 yen JPY, while the euro was little changed at $1.2868, having climbed as $1.2942, according to Reuters data. The single European currency rose 0.8 percent to 117.76 yen. The euro also came under pressure against the pound however after the latest batch of weak economic data from the 16-nation bloc that could hasten European Central Bank interest rate cuts.

Sterling rallied off 1 week lows hit on Thursday, up 1.8 percent against the dollar at $1.4522. The euro fell 1.8 percent to 88.58 pence.

The euro zone economy saw its deepest contraction on record in the fourth quarter of 2008, data showed, hit by a record weak performance in Germany as well as deeper-than-expected falls in output in France and Italy.

Analysts said that the worse-than-expected reading from the euro zone had raised concerns that G7 leaders may discuss the pound's recent weakness against the euro.

"There's a mixture of the poor GDP data and some short-covering ahead of G7 in the sense that the bad set of euro zone data might put the UK authorities under pressure at G7 to do something about the weaker pound," said Investec chief economist Philip Shaw.

French Economy Minister Christine Lagarde last month called for Britain to do something about its currency as France worried that its businesses will lose out to cheaper British goods and services just when recession is spreading across the industrialised world. The Australian dollar <AUD=> meanwhile, got an extra boost to trade up over 1.3 percent against the U.S. dollar after a last minute deal helped push a stimulus package through Australia's parliament.

SOARING DEFAULT RISK PREMIUMS WEIGH ON CURRENCIES

ING FX strategist Tom Levinson said the increasing premium demanded for insuring UK and U.S. government debt posed downside risks for the dollar and sterling.

Credit rating agency Moody's Investors Services said late on Thursday that the triple-A credit ratings of both the United States and Great Britain are "being tested" by the strains facing the global economy, while countries such as France and Germany are proving more resistant.

The comments pushed the cost of protecting debt issued by the British government to an all-time high and by the U.S. to a near record high.

Few expected the G7 finance officials meeting in Rome would issue a strong message on currencies in general or the yen in particular.

Even though the yen touched its highest in more than 13 years against the dollar in January, at 87.10 per dollar, it has retreated from that level and stabilised for now.

Japanese Finance Minister Shoichi Nakagawa said the G7 officials would confirm their anti-protectionist stance, but currency issues would take a back seat.

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Europe stocks rise on U.S. mortgage plan

PARIS - European stocks were up 1.8 percent around midday on Friday, snapping a three-sessionlosing run, as Washington's plan to subsidise mortgage payments for troubled homeowners sparked a relief rally across the board.

Recently beaten-down shares of banks and insurers were among the top gainers, with BNP Paribas up 3.8 percent, Axa up 4.8 percent, Credit Suisse up 5.9 percent and Banco Santander up 2.1 percent.

Energy and mining shares also rallied, along with crude oil and metal prices. Total gained 1.8 percent and Xstrata rose 4.4 percent. At 1145 GMT, the FTSEurofirst 300 index of top European shares was up 1.8 percent at 806.07 points.

In spite of Friday's rise, however, the benchmark index, down 3.2 percent in the year-to-date, was on track to record a 2.5 percent loss on the week, during which the Obama administration unveiled a revamped rescue plan for the banking sector and the U.S. Congress reached a deal on a $789 billion stimulus package. On Thursday, sources told Reuters the Obama administration was hammering out a programme to subsidise mortgages, a possible new front in the fight to beat the credit crisis, triggering a rally on Wall Street.

"We're seeing the 'buy the rumour, sell the news' strategy. The market rallied on the suspense surrounding the Obama stimulus plan, then retreated after the banking rescue plan was unveiled," said Valerie Plagnol, chief strategist at CM-CIC Securities, in Paris.

"But it will take a while before these plans could have an impact, so the recent short bounces on the stock market might just be false starts."

Shares in steel maker ArcelorMittal rose 5 percent while German rival Thyssen Krupp, which reported quarterly earnings ahead of market expectations, gained 3.6 percent.

RANGE BOUND

Pernod Ricard surged 7 percent after the world's No. 2 drinks maker, whose brands include Absolut Vodka and Jameson whiskey, stuck to its target of boosting recurring net profit to over 1 billion euros ($1.28 billion) in fiscal 2008/09.

Air France-KLM gained 6 percent after the company said it was abandoning costly fuel price hedges. Around Europe, UK's FTSE 100 index was up 0.9 percent, Germany's DAX index up 1.2 percent, and France's CAC 40 up 2 percent.

"We are in a trading range. After two weaker days the market goes up again. It's positive that there is no sustained downward pressure," said Giuseppe-Guido Amato, analyst at brokerage Lang & Schwarz in Duesseldorf.

Credit Suisse said in an equity research note it now expects European corporate operating earnings to fall by 34 percent over the next 12 months. Much of that, however, appears to be reflected in the share prices. "Most measures show good, but not excellent, value for equities," Credit Suisse said.

Later in the day investors will get the next piece of economic data with the University of Michigan survey of U.S. consumer confidence due for release at 1455 GMT.

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Nikkei snaps losing streak on U.S. hopes, yen

Japan's Nikkei stock average rose 1 percent on Friday, snapping a three-day losing streak on hopes for a new U.S. government programme to help troubled homeowners and gains in tech shares such as TDK Corp, with rises in Asian shares providing an additional boost. But Pioneer Corp tumbled, losing a fifth of its value after the Japanese electronics maker said it would cut 10,000 jobs and exit its loss-making flat TV business, a move that could signal a further shake-out in the battered sector.

U.S. stocks staged a late rally to close mostly higher on Thursday after Reuters reported the Obama administration is hammering out a programme to subsidise mortgages in a new front to fight the credit crisis.

Though positive sentiment lingered from this to boost Tokyo shares by sparking short-covering, much of the euphoria had vanished by afternoon. "Some people think that the U.S. proposals haven't really covered enough, but you have to look at the scale of what they're dealing with," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"The fact that they're trying to tackle it at all should be taken positively, but the whole problem is just so complicated."

Much of the Nikkei's upward momentum came from the yen's retreat against the dollar, but this lost steam as well. By afternoon the dollar clung to narrow gains of roughly 0.1 percent at just below 91 yen.

Asian shares also buoyed the Nikkei, with the MSCI index of Asia-Pacific shares outside Japan up 2 percent.

The benchmark Nikkei gained 74.04 points to 7,779.40 but lost 3.7 percent for the week, its first negative week in three weeks. The broader Topix rose 0.6 percent to 764.59.

Energy diminished as the day wore on, with investors reluctant to take on new positions ahead of a meeting of Group of Seven finance officials in Rome on Friday and Saturday and Japanese gross domestic product data out just before the market opens on Monday morning.

"Mainly the market response to G7 depends on what the yen does. If some new sort of economic proposal or statement on currencies comes out, there could be a positive response," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management. "But I don't think that people are really expecting much."

Other market players said the value of the GDP data as a factor would be overshadowed by developments involving General Motors Corp .GM.N, which is due to file a restructuring plan next Tuesday.

Tech shares gained after their U.S. peers rose, led by large-cap tech firms such as Apple, which was the biggest gainer on the Nasdaq on Thursday .

The Philadelphia Semiconductor Index rose 1.3 percent. Tokyo Electron climbed 1.5 percent to 3,440 yen and Advantest Corp rose 3.7 percent to 1,399 yen. Kyocera Corp rose 2.1 percent to 5,880 yen and TDK Corp gained 3.4 percent to 3,690 yen.

Exporters rose but came off earlier highs in tandem with the dollar's back-pedalling against the yen. Investors fret over a stronger yen because it eats into exporter profits when repatriated.

Canon rose 1.7 percent to 2,445 yen and Honda Motor Co rose 1.1 percent to 2,235 yen. Hitachi Ltd climbed 2.3 percent to 266 yen after Britain said it had chosen Hitachi, banking group Barclays and project management group John Laing to supply a fleet of intercity trains for 7.5 billion pounds ($10.7 billion).

Toyota Motor Corp was flat at 3,050 yen, giving up earlier gains, after offering buyouts to some 18,000 U.S. workers and saying it would cut the pay of executives and blue-collar workers in its North American manufacturing operations in response to plunging auto sales.

Pioneer lost 20.2 percent to 142 yen. Trade was moderate, with 2 billion shares changing hands, almost in line with last week's daily average. Advancing shares outnumbered declining ones by nearly 2 to 1.

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PRECIOUS-Gold slips as financial fear recedes

Gold prices slipped on Friday as fears of financial meltdown receded, but analysts say investors expecting only a brief respite from the maelstrom will carry on piling into the precious metal.

Stock markets rose on Friday, boosted by news that the United States was working on a programme to subsidise mortgages for homeowners before they fall into loan arrears.

Rising hopes of financial stability prompted a bout of profit-taking which took spot gold to a session low of $932.80 an ounce. At 1050 GMT it was at $934.80/936.80 an ounce from $945.05 late in New York on Thursday. "We don't expect it to move on dramatically from here, unless things take a turn for the worse in the global economy," said Tom Gidley-Kitchin, an analyst at brokers Charles Stanley. "The bull case for gold is that it is a safe haven."

The escalating crisis in the banking sector has pushed up gold prices by about 40 percent since late October last year.

Higher prices are reflected in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD. The fund's holdings reached a record above 970 tonnes as of February 12, a 30 percent jump since the end of October.

"This means that SPDR's gold holdings are now close to the level of those of the world's sixth largest holder of gold, the Swiss National Bank, which held 1,040 tons of gold in its vaults at the end of December," Commerzbank said in a note

"The Perth Mint reports an unprecedented demand for gold in the last three months, mainly from U.S. investors. According to the Mint, the value of the gold holdings by investors had doubled in the past year to comfortably over $2 billion."

Total exchange traded product holdings have risen at their fastest ever rate so far this year, growing by 200 tonnes to almost 1,400 tonnes, Barclays Capital said in a note. "Prices continue to appreciate steadily, but what really stands out is the dramatic increase in appetite for physical gold among investors."

Benchmark gold futures for April delivery GCJ9 eased to $941.2 an ounce from $954 late on Thursday and compared with a record $1,050 in March 2008. Spot gold too hit a record -- $1,030.80 -- last March. Many now expect investment demand to help push prices towards these levels.

Others think a new record could be set when inflation takes off next year because of the large amounts of money being pumped into the global economy by central banks and governments to boost growth and confidence.

Spot platinum, tracking gold, also slipped to $1,062/1,072 an ounce from $1,073 an ounce on Thursday. Deteriorating sales and bleak prospects in the auto sector have contributed to platinum's fall in recent months. The metal used in autocatalysts to clean car emissions is expected to stay under pressure.

Palladium was at $213/218 an ounce from $213.50 and silver at $13.35/13.43 from $13.46 on Thursday.

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