US & World Daily Markets Financial Briefing 15-10-2008

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US STOCKS-Recession worry, data outweigh good earnings

NEW YORK - U.S. stocks slid on Wednesday as investors worried that efforts to ease the credit crisis would not avert a recession, overshadowing solid profits from Coca-Cola Co and Intel Corp.
      
Investors' mood soured when a government report showed that sales at U.S. retailers last month slid by the biggest monthly drop in more than three years. Consumer spending accounts for two-thirds of U.S. economic activity.
      
Investors sold shares of economic bellwethers, including Caterpillar Inc , which fell 8 percent. Energy companies were another casualty as oil prices slid. Chevron fell more than 6 percent. U.S. crude for November delivery fell about 4 percent to $75.61 a barrel on the view that a recession would hurt energy demand.
      
"I think people are realizing there are interesting tools being put in place to deal with the credit crisis, but there's going to be a lag time to get them to work," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.
      
The Dow Jones industrial average slid 347.03 points, or 3.73 percent, to 8,963.96. The Standard & Poor's 500 Index tumbled 43.99 points, or 4.41 percent, to 954.02. The Nasdaq Composite Index dropped 53.96 points, or 3.03 percent, to 1,725.05.
      
Coca-Cola, the world's largest soft-drinks maker, posted a third-quarter profit above Wall Street's forecasts, sending  shares 6 percent higher to $46.36.
     
Intel Corp's shares rose 2.5 percent to $16.33. The chip maker posted a stronger-than-expected quarterly profit late on Tuesday. But investors fear the credit crisis has already done enough damage to the economy, making it unlikely that policy measures to unfreeze lending would prevent a recession.
      
Financial shares fell after an influential bank analyst at  Oppenheimer & Co, said U.S. banks were not out of the woods despite the government's plan to stabilize key players by investing $250 billion. Goldman Sachs fell 3.4 percent to $118.88, while Bank of America shares declined 3.2 percent to $25.70.
      
Shares of State Street Corp, one of the world's biggest institutional asset managers, tumbled more than 10 percent to $50.75. The company said it moved forward the release of its results and received some of the $250 billion the U.S. Treasury is investing.
     
Bucking the trend, JPMorgan Chase  rose 1.4 percent to $41.46. The bank said quarterly profit fell 84 percent due to mark-downs on underperforming loans, but its adjusted loss beat Wall Street's estimates.
      
Caterpillar shares fell to $43.75 on the New York Stock Exchange. Chevron declined to $62.57. Among retailers, Wal-Mart fell 3.5 percent to $52.56, while Target Corp slid 5.2 percent to $37.71. On Nasdaq, Qualcomm , a supplier of chips for cell phones and other technologies, were down nearly 4 percent at $38.78.
         
Shares of State Street Corp , one of the world's biggest institutional asset managers, tumbled more than 10 percent to $50.75. The company said it moved forward the release of its results and received some of the $250 billion the U.S. Treasury is investing. Bucking the trend, JPMorgan Chase  rose 1.4 percent to $41.46.

The bank said quarterly profit fell 84 percent due to mark-downs on underperforming loans, but its adjusted loss beat Wall Street's estimates.  Caterpillar shares fell to $43.75 on the New York Stock Exchange. Chevron declined to $62.57.
      
Among retailers, Wal-Mart fell 3.5 percent to $52.56, while Target Corp slid 5.2 percent to $37.71. On Nasdaq, Qualcomm , a supplier of chips for cell phones and other technologies, were down nearly 4 percent at $38.78.

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FOREX-Dollar falls vs yen as data stokes recession worries

NEW YORK - The dollar fell against the yen on Wednesday as a sharp slide in September retail sales  left investors fretting the government's $250 billion injection  into troubled banks may not keep the economy out of recession. A report showing U.S. retailers posted their biggest  monthly decline in more than three years last month pushed the  dollar to a session low at 100.88 yen, down more than 1  percent from late Tuesday.
   
The euro also gave up ground against the yen and dollar as  global stock markets weakened. The retail sales data "really highlights the problems we  are seeing in the U.S. economy," said Kathy Lien, director of  currency research at GFT Forex in New York.
   
"The question on everyone's minds is how deep of a  recession. Today's number indicates a very strong chance of  negative growth for the third quarter" and hints at more  interest rate cuts from the Federal Reserve, she added.
   
The dollar was last trading at 101.10 yen, down 1.1  percent and close to a session trough of 100.88 yen. The euro  was down 1.4 percent at 137.37 yen and down 0.2 percent  at $1.3587. Sterling rose 0.8 percent to $1.7549.
  
The low-yield Japanese currency rallies when risk appetite  wanes as investors rush to get out of trades in higher-yielding  currencies and assets financed with cheaply borrowed yen. Governments around the world in recent days have announced  plans to kick-start lending and shock the financial system out  of paralysis by injecting billions directly into banks and  guaranteeing many types of bank borrowing.
  
Traders said extreme fears about the financial crisis  receded after short-term interest rates for dollars eased in  response to the U.S. bank bailout announcement on Wednesday,  which followed similar pledges in Britain, France and Germany.
   
But even if that helps thaw frozen credit markets, analysts  warn that the economic fallout from the crisis, which began  more than a year ago, is likely to slow global growth sharply. The U.S. sales data bolstered that view, as did remarks  late Tuesday from San Francisco Fed President Janet Yellen, who  said the United States "appears to be in a recession" and  "virtually every major sector of the economy has been hit by  the financial shock."
   
"As we move away from all of the 'shock' headlines, the  market will, eventually, get back to fundamentals," said Dustin  Reid, head of FX strategy at RBS Global Banking & Markets in  Chicago. "And when it does, the market will likely trade on the  notion that global growth is likely to have a very soft 2009."
   
Weaker growth may indeed spell additional interest rate  cuts from major central banks, which cut rates in concert last  week as part of efforts to stabilize world financial markets. A separate U.S. report showing a relatively tame increase  in core producer prices, which strip out food and energy, may  provide cover for more Fed rate cuts by year end 
   
The European Central Bank is also expected to cut rates  again after reducing its refinancing rate to 3.75 percent  earlier this month in the concerted action. Euro-zone data on Wednesday showed that slowing growth in energy and food prices helped to curb inflation in the region in September.
   
Norway's central bank cut rates by half a percentage point  on Wednesday, sending the crown to a near 4-1/2-year low  against the euro. The dollar was up 0.8 percent at  6.3301 crowns. 

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Europe shares slip; recession fears centre stage

LONDON -  European shares headed lower on Wednesday to break a two-day winning streak as the euphoria over bold government action to arrest a financial sector meltdown dissipated and recession fears took centre stage.
   
At 0855 GMT, the FTSEurofirst 300 index of top European companies was down 2.8 percent at 939.10 points, after gaining a record 10 percent on Monday and 3 percent on Tuesday.
   
On Wednesday, banks were the top weighted sectoral losers, with Standard Chartered falling 6.6 percent, Societe Generale shedding 3 percent, HSBC down 3.2 percent and UBS down 4 percent.
   
KBC fell 13.7 percent. The Belgian banking and insurance group said it expected a third-quarter loss of up to 930 million euros ($1.3 billion) after Moody's cut the credit ratings on a number of structured investment products that KBC had invested in.
   
Recession fears returned after trillions of dollars pledged for bank bailouts from Europe to Asia helped allay fears of an imminent financial meltdown. "After the colossal gains achieved at the start of this week, it would seem that the hangover has kicked in and investors have sobered to the reality that recession is here," said Andrew Turnbull, senior sales manager at ODL Securities.
   
EU leaders meet in Brussels just days after stumping up 2.2 trillion euros ($3 trillion) to rescue European banks and jolt frozen money markets -- at the heart of worst financial crisis since the Great Depression -- into life.
   
European leaders will press for an overhaul of the world's financial structures after Asia joined western bastions of capitalism in bailing out banks to avert a financial meltdown.
   
Southeast Asian nations backed by Japan, South Korea, China and the World Bank were the latest to join the global rescue effort, agreeing on Wednesday to create a multi-billion fund to buy bad debt and help banks.
   
The United States on Tuesday offered to take $250 billion worth of stakes in nine top banks. But concerns remained that the rescue would come at a huge economic cost and do little to repair the damage already done by a 14-month credit crunch, which has slowed the economy.

Commodity shares also fell, tracking losses in metals and crude oil prices.  Oil fell 1.3 percent to trade below $78 a barrel, a far cry from all-time highs of around $147 hit earlier this year. BP , Royal Dutch Shell, gas producer BG Group and Tullow Oil shed between 0.1 and 5.9 percent.
   
Weaker metals prices dragged down mining shares, with BHP Billiton, Anglo American, Lonmin, Kazakhmys, Xstrata and Antofagasta falling between 2.6 and 13 percent.
   
Global miner Rio Tinto fell 9.2 percent. It warned of slowing Chinese demand for commodities because of the world financial crisis and signalled a possible delay in plans to sell $10 billion in assets. 
   
Vedanta shares were down 11 percent. Britain's FTSE was down 2.7 percent, Germany's DAX fell 2 percent and France's CAC slipped 2.2 percent. The FTSEurofirst 300 index plummeted 22 percent last week -- its worst weekly performance ever, and is down nearly 37 percent so far this year.

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Asian Market Summary

Hong Kong shares close sharply lower on profit-taking;Tsang speech has no impact

HONG KONG - Share prices closed sharply lower, with the key index slipping back below 16,000, as investors locked in profits following the market's 13.8 pct gain over the previous two sessions.
  
Profit-taking gathered pace in the afternoon after a weak open on European markets as fears of a US recession grew despite a rescue of the nation's large banks.
   
Banks were mostly down despite government's pledge yesterday to guarantee all bank deposits and establish a stand-by facility to provide additional capital to local financial institutions if needed.
   
The Hang Seng index closed down 834.58 points or 4.96 pct at 15,998.3, off a low of 15,961.92 and high of 16,609.09. Turnover was 52.21 bln hkd.
   
The property sector index was down 779.36 points or 4.28 pct at 17,444.36. The Hang Seng China Enterprises index closed down 541.4 points or 6.42 pct at 7,894.06.

The benchmark Nikkei added 99.9 points to end at 9,547.47. It fell as much as 1.9 percent at one stage.  The Nikkei jumped more than 14 percent on Tuesday, the biggest one-day gain in its 58-year history, after losing 24 percent the previous week. The broader Topix dipped 0.08 percent to 955.51.

Indian shares tumble on credit worries, fears of global recession; L&T drops

Indian shares closed down more than 5 percent on Wednesday, tracking negative cues from other Asian and European markets, as worries about the credit squeeze and global recession dragged down sentiment.
   
Analysts also said selling pressure intensified amid fresh shorts on anticipation of a slump today, and as investors exited cashed out of counters bought in the previous two trading sessions.
   
The Bombay Stock Exchange's benchmark Sensitive Index tumbled 674.28 points or 5.87 percent to 10,809.12, while the National Stock Exchange's S&P CNX Nifty dipped 180.25 points or 5.12 percent to 3,338.40.

All 30 Sensex constituents felll, led by private engineering company Jaiprakash Associates Ltd. Shares of Jaiprakash plunged 14.47 percent to 72.70 rupees, while those of its larger peer Larsen & Toubro Ltd. sank 110.50 rupees or 11 percent to 893.15 rupees.
   
Shares of L&T fell due to the broad selling pressure seen in capital goods companies and despite the company posting a 32.2 percent rise in second-quarter net profit.
  
About 2.2 million shares of L&T changed hands, more than twice the 50-day average daily volume of 1 million shares and almost thrice the 200-day average of 0.8 million.
  
India's biggest private lender ICICI Bank Ltd. slid 7.36 percent to 414.20 rupees, while the country's biggest-listed private firm Reliance Industries Ltd. slipped 6.2 percent to 1,519.25 rupees.
   
The BSE capital goods index led all the 13 BSE sectoral indices that declined, sinking 8.88 percent. In the broader market, where about 220 million shares traded, there were almost four advancers for each decline.
   
Among the 50 shares which the Nifty tracks, 47 retreated and were led by Reliance Infrastructure Ltd. as it tumbled 12.25 percent to 555.45 rupees. Drug maker Sun Pharmaceuticals Ltd. gained the most, rising 1.05 percent to 1,398.55 rupees on the NSE on which 453.1 million shares traded.

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Gold climbs as equity markets fall further

LONDON - Gold climbed more than 1 percent in Europe on Wednesday, with stock market losses prompting investors to buy bullion as a haven from risk.

Platinum slipped 3 percent and rhodium tumbled more than 10 percent as fears over the outlook for the global economy added to the perception demand for the platinum group metals from the car industry will fall.

Spot gold rose to $845.20/848.20 an ounce at 1000 GMT from $835.25 in late New York trade on Tuesday. Earlier it touched a session high of $848.30. "There seems to be some uncertainty surrounding the stock markets, and that is holding gold up," said Deutsche Bank trader Michael Blumenroth. "It is still considered to be a safe haven investment."

European shares slipped, breaking a two-day winning streak, as the euphoria over bold government action to arrest the financial sector meltdown dissipated and recession fears took centre stage.

Their dive mirrored losses in Asia overnight, and on Wall Street on Tuesday. Weakness in the equity markets typically fuels buying of gold, as traders move from investment in volatile stocks and shares to so-called 'safer' assets such as bullion.

Investors will be closely watching the performance of Wall Street when it opens at 1330 GMT. "(People are) betting on how stocks will perform later," said Blumenroth. Gold was also pressured by a softening in the oil price, with crude dipping around a dollar at its lowest point on expectations economic weakness will further cut fuel demand.

Falling crude prices typically weigh on gold, which is often bought as a hedge against oil-led inflation. Gold's other main external driver, the dollar, is currently taking a back seat to economic and financial concerns, analysts said. The U.S. currency was trading a touch firmer against the euro.

Among other precious metals, spot silver was quoted at $10.85/10.93 an ounce against $10.95. The platinum group metals also largely posted declines, with platinum slipping more than 3 percent and rhodium falling more than 10 percent, as investors worried over the demand outlook as the financial crisis spread.

Rhodium RHOD-LON shed $350 an ounce as investors sold the precious metal on fears demand from carmakers would fall, and to raise cash to cover losses on other markets. It was quoted at $2,850 an ounce against $3,200 an ounce on Tuesday.

Auto manufacturers' association ACEA said European new vehicle sales fell 8.2 percent in September, and U.S. car sales have also fallen, recent figures suggest. "Car sales are looking grim from everywhere, really, and that is the major home for the majority of rhodium," said one British trader.

Spot platinum fell to $995/1,015 an ounce against $1,017.50 late in New York on Tuesday. Falling auto sales are pressuring platinum, around half of which is consumed by the car industry annually.

Stock market losses are also weighing, as they suggest the global financial crisis is spreading, traders say. "I don't think that platinum -- or any other commodity -- has a life of its own right now," a German-based trader told Reuters. "Everybody is just reacting to news from the different bail-out plans and the developments on the equity markets."

"Banks still don't lend to each other and even the Fed is now talking recession," he added. "It doesn't look to good for commodities, and car sales are not really in favour of the PGMs."

Spot palladium was quoted at $195.50/203.50 an ounce against $195.

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