US & World Daily Markets Financial Briefing 17-02-2009

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U.S. stocks sank on Tuesday on concern that the recession is worsening and that efforts to stabilize the beleaguered financial system may not be enough.

The slide took the benchmark S&P 500 below the 800 level for the first time since the bear market low of Nov. 21 as financials and shares of big energy companies weighed.

Shares of Bank of America  fell 10.7 percent to $4.97 on the New York Stock Exchange, as shares of JPMorgan  declined 8.4 percent to $22.64. Wells Fargo  declined 8.1 percent to $14.50.

The KBW Banks index tumbled 7 percent.

Energy shares slid along with plunging oil prices, sending Exxon Mobil  down 4 percent to $71.59. U.S. front-month crude CLc1 dropped 6.7 percent, or $2.66, to $34.98 a barrel amid concern the deepening recession will sap energy demand.

"It's possible that all four quarters will be negative this year. The data continues a pattern of bad data that will weigh on the markets for the foreseeable future," said Jim Awad, managing director at Zephyr Management in New York.

The Dow Jones industrial average slid 254.64 points, or 3.24 percent, to 7,595.77. The Standard & Poor's 500 Index declined 31.46 points, or 3.80 percent, to 795.38. The Nasdaq Composite Index tumbled 54.45 points, or 3.55 percent, to 1,479.91.

Wal-Mart  was the only stock higher in the 30-component Dow industrial average after the retailer posted a quarterly profit that beat Wall Street's forecasts. It was up 2.7 percent at $47.78.

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The Canadian dollar fell to its lowest level in almost a month against the U.S. dollar on Tuesday, hurt by rising risk-aversion as fears mounted of a protracted global economic downturn.

There was little home-grown news to drive the Canadian dollar early on Tuesday and it was being hit by wariness about the health of Europe's banks, the falling price of crude oil, and uncertainty ahead of a deadline for car giants to submit turnaround plans.

At 9:15 a.m. (1415 GMT), the Canadian dollar was at C$1.2660 to the U.S. dollar, or 78.99 U.S. cents, down sharply from C$1.2341 to the U.S. dollar, or 81.03 U.S. cents, at Friday's close.

Earlier, the Canadian currency had fallen to C$1.2675, or 78.89 U.S. cents, its weakest level since January 22.

Some of Canada's markets were closed on Monday for provincial holidays, while the Bank of Canada put the currency's close at C$1.2438 to the U.S. dollar, or 80.40 U.S. cents on Monday.

The greenback, which is currently perceived as a safe-haven currency, rose broadly while the euro fell to 10-week lows, pressed by concerns over a recession in eastern Europe and the knock-on effect on European banks.

BOND PRICES BOUNCE BACK

Canadian bond prices were comfortably higher across the curve with dealers playing catch up as data released on Monday, when the bond market was closed for a holiday, showed domestic factory sales had a record plunge in December.

The data showed manufacturing shipments dropped a record 8 percent from November, the fifth consecutive month-on-month decrease. It was also far steeper than the 5.3 percent fall predicted by analysts.

Eric Lascelles, chief economics and rates strategist at TD Securities, also said there was more demand for secure government debt because of concerns that the recession in emerging Europe may be more severe than elsewhere given large imbalances.

Lascelles added that a G7 meeting in Rome over the weekend that pledged to combat the recession without distorting free trade did little help risk appetite.

Canada's economic data calendar will pick up on Wednesday with the January wholesale trade report, but Friday's consumer price index data for January is likely to attract the most attention.

The interest-rate sensitive two-year bond was up 7 Canadian cents at C$102.80 to yield 1.154 percent, while the 10-year bond rallied 70 Canadian cents to C$110.20 to yield 2.865 percent.

The 30-year bond increased C$1.15 to C$124.30 to yield 3.620 percent.

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The Nikkei average fell 1.4 percent on Tuesday to a nearly four-month closing low, as financial shares such as banks and property firms slid on continued credit worries.

But trade was cautious ahead of restructuring plans that General Motors Corp  and Chrysler LLC are required to submit by Tuesday showing how they can be made viable after receiving $13.4 billion in emergency aid.

"Investors are selling stocks not only in Japan but in other Asian markets as they wait for restructuring plans from GM and Chrysler. There's a view in the market that they might not be able to submit it on time," said Soichiro Monji, chief strategist at Daiwa SB Investments.

"Although there's no specific news prompting a sell-off, shares of companies with credit worries are under pressure, such as real estate and financial firms."

Japanese Finance Minister Shoichi Nakagawa said on Tuesday that he would resign after passing the budget for next fiscal year, following criticism of his behaviour at a weekend G7 news conference in Rome, though the news may be neutral for stocks.

"The resignation of Nakagawa wouldn't have an impact on the stock market, but if anything, it's positive that he'll do this after the budget is passed," Monji said.

The benchmark Nikkei shed 104.66 points to 7,645.51, its lowest finish since Oct. 28 when it ended at 7,621.92.

The broader Topix lost 1.8 percent to 756.53.

GM was not expected to reach detailed agreements by the deadline but talks with both key groups made progress in the final day, people briefed on the discussions said.

"Investors want to see how things go with GM," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities. "If it were to end up filing for a bankruptcy or something, the stock market would face a sell-off."

After the bell, U.S. fund Steel Partners said it had withdrawn its proposal to acquire 33.3 percent of Japanese brewer Sapporo Holdings , citing the firm's performance and refusal to negotiate with it.

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Sapporo shares ended down 9.7 percent at 381 yen before the news.

FINANCIALS, PROPERTY FIRMS FALL

Bank shares slid in the wake of falls by their global peers after Friday's profit warning by Lloyds , which revived concerns it could need more state funds or be fully nationalised due to deepening problems at subsidiary HBOS, which it bought last month.

Mitsubishi UFJ Financial Group , Japan's top lender, lost 4 percent to 451 yen, while No. 2 bank Mizuho Financial Group slid 3.9 percent to 200 yen. Sumitomo Mitsui Financial Group fell 2.7 percent to 3,270 yen.

Property firms slid after data released on Monday showed the number of new apartment units put up for sale in metropolitan Tokyo for January fell 24.1 percent from the same month last year.

Mitsui Fudosan , Japan's largest real estate developer, tumbled 5.8 percent to 1,097 yen. Sumitomo Realty & Development fell 4.6 percent to 1,004 yen and Mitsubishi Estate dropped 5.1 percent to 1,089 yen.

The real estate subindex shed 4.5 percent, one of the biggest losers among the subindexes.

Even after the dollar rose to its highest in more than a month against the yen , some high-tech shares, which had climbed last week, lost ground.

Advantest Corp fell 1.8 percent to 1,327 yen and Tokyo Electron slid 3.7 percent to 3,350 yen.

Among gainers, Bridgestone Corp , Japan's biggest tyre maker, jumped 5.2 percent to 1,349 yen after Credit Suisse upgraded it to "outperform" from "neutral" and raised its target to 1,700 yen from 1,400 yen, citing its resilience amid negative conditions.

Honda Motor rose 1.1 percent to 2,225 yen after Japan's No. 2 automaker said orders for the new Insight -- its first real attempt at selling fuel-sipping hybrid cars in big volumes -- have exceeded 10,000 units since it unveiled the car earlier this month.

Trade was light on the Tokyo exchange's first section, with 1.6 billion shares changing hands, below last week's daily average of 1.9 billion.

Declining stocks outpaced advancing ones by almost 4 to 1.

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Gold hit seven-month highs on Tuesday as risk-averse investors bought into the precious metal as a safe store of value away from the turmoil in financial markets.

The precious metal rallied to new highs in a raft of currencies, including the euro, sterling, the South African rand, the Indian rupee and the Canadian and Australian dollars.

Spot gold  rose to $965.80/967.80 an ounce at 1400 GMT from $940.90 in New York late on Monday. Earlier it touched a high of $967.40 an ounce, its firmest since July 22.

U.S. gold futures for April delivery GCJ9 on the COMEX division of the New York Mercantile Exchange rose $25.00 to $966.50 an ounce, having earlier touched a high of $966.60.

Fears about a deepening recession increased as U.S. stock index futures fell after a bleak report on New York manufacturing.

Credit rating agency Moody's said on Tuesday the recession in eastern Europe is likely to be more severe than elsewhere and would put financial strength ratings of local banks and their Western parents under pressure.

Fears over the global economic outlook and worries that governments' attempts to kick-start their economies may cause high inflation are fuelling investment in gold.

News that the Russian central bank planned to buy more gold in 2009 also boosted interest in the metal, Kempinski said.

RUSSIA

Alexei Ulyukayev, deputy chairman of Russia's central bank, told Reuters the bank had increased gold's share of its reserves, and planned to continue doing so this year. "We are buying gold," he said.

UBS strategist John Reade said he expected the bank would make purchases from domestic producers.

"We expect slow and steady accumulation from the CBR in coming years and do not expect Russia to start buying gold in the international OTC market," he said.

While investment in products like gold-backed exchange traded funds has soared as investors seek a safe place for their cash, high prices are hurting jewellery demand in key centres of gold buying, India, China and the Middle East.

Buyers in India, usually the world's leading market for gold, ignored the wedding season and postponed purchases as they grappled with high prices, traders said. The flow of scrap supply gained momentum.

The benchmark April gold contract MAUJ9 traded in India peaked at 15,379 rupees per 10 grams, boosted by safe haven buying and a weak rupee.

Gold shrugged off moves in its usual external drivers, crude oil and the dollar. The dollar, which normally moves in the opposite direction to gold, rose to ten-week highs versus the euro, also benefiting from rising risk aversion.

Oil prices fell more than 5 percent as bleak economic indicators in Asia turned attention back to the demand slump.

Among other precious metals, spot silver  climbed to $13.94/14.00 an ounce from $13.57.

Spot platinum  edged up to $1,082/1,092 an ounce from $1,063. The fundamentals for the metal remain weak, with demand from carmakers -- the major users of the platinum group metals -- severely hit by the recession in the United States.

Spot palladium  hit a three-month high of $218.50 an ounce, before easing back to $215/220 an ounce from $213.50.

The metal has been supported by buying for palladium-backed ETFs, on the perception the metal is cheap compared to its peers.

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