US & World Daily Markets Financial Briefing 17-10-2008

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US STOCKS-Wall St pulled lower by recession worry

NEW YORK - U.S. stocks slid on Friday as a report pointing to further deterioration in housing added to recession fears, and offset reassuring profits from  manufacturer Honeywell International Inc and Google Inc.
   
The Dow Jones industrial average fell 234.88 points, or 2.62 percent, to 8,744.38. The Standard & Poor's 500 Index  lost 25.17 points, or 2.66 percent, to 921.26. The Nasdaq Composite Index was down 45.28 points, or 2.64 percent, at 1,672.43.

US September housing starts fall 6.3% to a 817,000 unit rate, permits fall 8.3%

WASHINGTON - Housing starts dropped much more than expected in September due to new record lows for single-family housing starts in three out of four regions in the US, the Commerce Department said today.
  
Commerce said US September housing starts fell 6.3% to an annual rate of 817,000 units, the lowest rate since January 1991.
   
Economists polled by Thomson Reuters IFR Markets were expecting starts to drop to an annual rate of 880,000.
   
Housing starts are down 31.1% from September 2007. New construction of single-family homes, a better and more stable indicator of new home trends, fell 12.0% in the month to an annual rate of 544,000 units. That's the slowest pace since February 1982, and the largest monthly decline since October 2006.
   
Single family housing starts hit record low levels in the Northeast, West and Midwest, and starts in the South hit a low not seen since January 1991. Starts of homes for five or more families rose 5.8% in the month to an annual rate of 254,000.
   
Total housing starts in the Northeast fell 20.9% and fell 16.8% in the West, but rose in the South by 0.5% and rose 5.6% in the Midwest.
   
New building permits in September were down 8.3% to an annual rate of 786,000 units from the upwardly revised 857,000 reported in August. Economists were expecting a 850,000 annual rate for building permits in September.
   
Single-family permits fell 3.8% to 532,000 annual units, the lowest level seen since August 1982. Permits for buildings with five units or more fell 17.6% to 225,000 annual units.
   
Homes still under construction fell 2.7% overall, and fell 4.4% for single-family homes. The number of homes completed in the month rose 11.7%, and single-family homes completed rose 17.0%.

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FOREX-Yen up, dollar rises vs euro as risk appetite suffers

NEW YORK - The yen rose against the dollar and euro on Friday as more signs of weakness in the U.S. economy heightened fears that the ongoing credit crisis had pushed the global economy to the brink of recession.   
      
Though governments worldwide have started pouring cash into troubled banks, helping reduce the cost of interbank borrowing, investors remain worried about high cost to the economy from a credit crisis that has persisted for more than a year now.
      
And with signs of trouble now emerging in economies in Eastern Europe and Asia, investors have reversed risky trades financed with low-yielding yen, helping lift the Japanese currency at the expense of its higher-yielding rivals.
      
The dollar, which benefits from risk aversion because dollar-based investors repatriate funds, gained on the euro. "The focus is shifting from the credit crisis to a looming global recession," said Omer Esiner, senior currency analyst at Ruesch International in Washington. "I'd characterize recent U.S. data as dismal, but no matter how bad things get here, the global picture looks just as bad," and that will support
the dollar and the yen, he said.
      
Early morning, the dollar was down 0.6 percent at 100.95 yen, while the euro was down 0.9 percent at 135.69 yen , edging closer to a three-year low around 132. European stocks pared earlier gains while U.S. stocks pointed toward a lower opening on Wall Street.
      
The euro also fell 0.4 percent to $1.3435, while sterling was flat at $1.7317. "We're still in an incredibly unstable market which will persist for a long time. Although we've had all these policy initiatives, it won't necessarily stop the extreme moves we've seen across markets," said Bilal Hafeez, foreign exchange strategist at Deutsche Bank in London. "Given that context, I expect to see the yen strengthen across the board."
      
U.S. economic data has discouraged traders this week, with reports on retail sales and industrial output showing sharp declines. On Friday, a Commerce Department report showed U.S. housing starts continued to fall in September, and markets awaited a fresh reading on consumer sentiment due at 10 a.m. (1400 GMT).
      
The dollar, however, has held its ground against most higher-yielding currencies, thanks to safe-haven flows. Esiner said much of that is also driven by concern about the economy beyond U.S. borders.
     
With the Federal Reserve having slashed interest rates to 1.5 percent, he said there is little room for further cuts. That's not so in the eurozone, Britain and beyond, where rates are much higher. "That means they have a lot further to fall, so in a global recession scenario, the euro, sterling, Aussie and kiwi have a lot more room to the downside," he said.
      
The Australian dollar, with rates of 6 percent, was down 2 percent against its U.S. counterpart at $0.6788 while the New Zealand dollar fell 1.3 percent to $0.6116.
      
Further unnerving investors on Friday was news that Ukraine and Hungary had turned to the International Monetary Fund and other foreign lenders to help bolster their financial systems. That soured sentiment on emerging markets in general and sent investors back into yen, considered low-risk because Japan's key interest rate remains at just 0.5 percent.

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Drugmakers, oils lead Europe shares higher

LONDON - European shares rose nearly 3 percent in choppy trade by midday on Friday, led by drug and energy shares. At 1206 GMT, the FTSEurofirst 300 index of top European shares was up 2.3 percent at 870.83 points after rising as high as 899.04 points.

Pharmaceutical companies were among the top gainers, with AstraZeneca, Novartis and GlaxoSmithKline rising between 5.6 and 6.8 percent.

Dealers pointed to volatile trade, much like that seen throughout the week, as the FTSEurofirst roared as much as 5.3 percent higher earlier on Friday. "Today caution is the name of the game. With the expiration of options on indices and futures I am open for everything (from moderate gains to moderate losses)," said a Frankfurt-based trader.

Oil groups BP, Total and Shell climbed 4.3 to 5.5 percent as crude rose nearly $1.22 to $71.00 a barrel amid growing expectations of an OPEC production cut.

Dutch ING, down 15 percent, led a group of large-cap European banks lower, while French BNP Paribas slipped 4.5 percent and Societe Generale SOG.N shed 2.03 percent.

The FTSEurofirst 300 index rose 10 percent on Monday and 3 percent on Tuesday, helped by efforts by governments to thaw interbank lending, but suffered falls of 6.5 percent and 5 percent on the next two days as fears of a recession took grip.

"This is the most volatile week we've seen," said Thierry Lacraz, strategist at Swiss bank Pictet in Geneva. "The sole intelligent thing is to remain on the sidelines and not make any huge bets."

Across Europe, Britain's FTSE, Germany's DAX and France's CAC posted gains of 1.91 to 2.91 percent.

The DJ Stoxx European technology index was the top sectoral percentage gainer, jumping 6 percent, after Internet search and advertising group Google defied the economy to beat forecasts, and tech services group IBM said it would meet long-term goals.

Handset makers Ericsson and Nokia were strong, rising 3.35 and 8.7 percent. Nokia posted a fall in third-quarter earnings on Thursday but sounded a reassuring note about cellphone volumes for the full year.

Shares in auto group Daimler jumped 9.1 percent after a source familiar with the talks said private equity group Cerberus was in talks to buy Daimler's remaining stake in Chrysler. Daimler declined to comment.

BMW and Renault both added 3 percent on Goldman Sachs upgrades. But losses from European heavyweight automaker Volkswagen, helped hold the sector back. VW lost 8.7 percent as traders said the stock continued its curious trend of decoupling from German large-cap shares.

In the robust health sector, Sanofi-Aventis added 7.2 percent to be one of the top performers on talk that U.S. approval for a rival to its Plavix anti-clotting drug will be delayed. The FTSEurofirst 300 has fallen 17 percent so far this month, on track for its worst month on record.

The index has been sideswiped by a credit market crisis that piled up losses at big banks, froze interbank lending and slowed the economy. It is down more than 40 percent this year, which would also be the worst on record.

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HK shares close at 3-year low; China banks slump

Hong Kong shares fell 4.4 percent to a three-year closing low on Friday as investors exited equity holdings ahead of the weekend, following a week of sharp gains and steep slides amid looming fears
of a global recession.
  
The benchmark Hang Seng Index closed 676.31 points lower at 14,554.21, after advancing to 15,300.07 earlier.
   
The blue-chip index ended the week 1.6 percent lower after a 2-day, 14 percent rally was outweighed by a 13.5 percent drop in the last three days of trade.
   
"The focus of the financial crises has now firmly moved to Asia," said Linus Yip, strategist with First Shanghai Securities.  "Given the way the Korean markets and currency have gone in the past few days people have a lot to be worried about."
   
South Korea's KOSPI closed at a three-year low on Friday, while its currency has fallen 17 percent in the last five weeks.
   
Mainland mobile phone operator China Unicom shed 6.7 percent on concerns its merger with fixed-line network China Netcom may hurt earnings. The two companies merged on Oct. 15 and on the same day, China Netcom reported a fall in revenue during the first nine months.
  
Asia's largest oil & gas producer, PetroChina, slid 6.0 percent on fears that lower oil prices may dent profits. Crude oil prices fell more than $6 a barrel to below $70 overnight on rising U.S. inventories and slowing demand amid a global economic crisis.Offshore oil producer CNOOC plumetted 6.2 percent, adding to its two-day 14.6 percent slide.
   
Mainboard turnover fell to HK$59.3 billion ($7.6 billion) from HK$64.3 billion at on Thursday. Turnover spiked nearly 11 percent during the 10-minute closing auction window as investors bailed out of the markets ahead of the weekend.
   
"People are cautious ahead of the weekend in view of the extreme volatility on Wall Street, so the selling pressure remains," said Howard Gorges, vice chairman at South China Securities. "Earnings estimates are being revised down and these are being priced in by the market. People are reckoning that earnings will be adversely affected by the crisis."
   
Chinese bank shares fell on worries China's slowing economy may cut demand for loans, trim profits and raise bad loans, said Y.K. Lee, an analyst at Core-Pacific Yamaichi. Investors also fretted that U.S. and European banks invested in mainland banks may sell their holdings in the wake of the turmoil in the financial markets.
   
China Construction Bank dropped 6.7 percent, while No.3 lender Bank of China slid 7.8 percent. The China Enterprises Index of top locally listed mainland Chinese companies tumbled 4.8 percent to 7,007.53.
   
Shares in gold miner Zijin Mining dropped 7.5 percent after the price of the precious metal eased further on Friday, following a 6 percent decline overnight as investors fled commodities, including bullion, and opted for the safety of cash.

Indian shares plummeted further on Friday, after gains in early trade, as a gloomy outlook about the global economy strengthened the bearish mood and triggered a sell-off across the counters.
   
"Global events have been largely responsible for the recent volatility in markets. India has been impacted primarily due to flight of capital and risk aversion with regard to emerging markets," said Puneet Nanda, chief investment officer of ICICI Prudential Life.
   
Market regulator's data showed foreign funds have dumped Indian equity worth more than $11.5 billion in 2008 so far.

The Bombay Stock Exchange's benchmark Sensitive Index closed Friday at 9,975.35, its first sub-10,000 points finish since June 20, 2006, when it ended at 9,822.52. Today, it had risen almost 2 percent to the day's high of 10,786.93 points before the downward slide. The barometer lost 5.25 percent this week and is down nearly 53 percent from its lifetime high of 21,206.77 touched on Jan. 10, 2008.
   
The National Stock Exchange also swung in a range of 300 points Friday to end 194.95 points or 5.96 percent lower at 3,074.35.
   
Dealers said fears of a global slowdown overshadowed the spate of measures recently announced by regulators to ease the liquidity crunch. In one such measure, the Indian central bank infused a trillion rupees (about $20.6 billion) into the money market on Oct. 11 by slashing the reserve requirements that lenders should park with it by 250 basis points to 6.5 percent.
   
ICICI Prudential Life's Nanda added: "However, with GDP growth rate in the 7.5 percent to 8.0 percent range, high savings and investment rate along with reserves in excess of $275 billion, India's macro fundamentals remain very strong. This coupled with extremely reasonable valuations, makes Indian equity markets an attractive destination for disciplined long term investors."

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Gold eases below $800/oz as dollar firms

LONDON - Gold eased below $800 an ounce on Friday, extending the previous session's 5 percent price drop, as a firmer dollar pressured the metal.
      
Spot gold was quoted at $798.65/801.15 an ounce at 0951 GMT, down from $804.50 late in New York on Thursday. Prices tumbled in that session as funds liquidated gold holdings to cover losses on other markets.
      
Fresh strength in the dollar weighed on prices. "The recent dollar strength has tended to weigh on gold pretty heavily," said Standard Chartered analyst Daniel Smith. "The dollar remains the underlying
driver (of gold)."
      
Nonetheless, he said, the conflicting pressures on gold -- including firmer oil and investor deleveraging -- are likely to result in consolidation, rather than further large price moves. "Gold is reasonably close to fair value at the moment," he said. "It looks like gold will trade sideways from here."
      
The precious metal is likely to be strongly influenced this session by movements in the dollar, the main external driver of gold. Gold is often bought as an alternative investment ot the currency and typically moves in the opposite direction to it.
      
The dollar firmed a touch against the euro, as turmoil on the financial markets boosted the U.S. currency's appeal as a haven from risk.
      
Gold's other main driver, crude oil, is lending some support to the market, however. Prices ticked up more than $3 a barrel as a late rally among Wall Street stocks and expectations of an OPEC production cut cheered investors.
      
Rising crude prices boost interest in gold as a hedge against oil-led inflation. A rebound in equity markets after sharp losses in the previous session is also likely to cut some call for gold as a haven from risk. European shares jumped as investors picked up battered bank and firmer oil prices benefited
energy shares.
      
The world's largest gold-backed exchange traded fund, New York's SPDR Gold Trust, said its bullion holdings slipped more than 1 percent on Thursday to 756.86.
       
Among other precious metals, silver rose to $9.76/9.84 an ounce from $9.63 an ounce late in New York on Thursday. The precious metal slipped sharply that session, falling to a 2-1/2 year low of $9.21 an ounce.
      
The platinum group metals tumbled on Thursday, with platinum and palladium both shedding more than 10 percent of their value to their day lows on fears over falling car sales.
      
The metals have extended losses on Friday. The platinum group metals are primarily used in catalytic converters, and are sensitive to problems in the automotive sector.
      
The car market has been hit hard by the economic downturn, with reports suggesting record low auto sales have sparked merger talks among the major carmakers. "All commodities are under pressure and outlook for the car industry is really depressing," said one European trader. "I think we could see $800 in
platinum and $150 in palladium pretty soon."
     
"It seems some funds are still liquidating and industry not really buying," he added. Spot platinum was quoted at $860/880 an ounce, down from $884.50 late in New York on Thursday. Palladium was at $167/175 an ounce, down from $171.

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