US & World Daily Markets Financial Briefing 17-11-2008

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US STOCKS-Wall St opens down on economic worries

NEW YORK - U.S. stocks opened lower on Monday after Japan became the latest major economy to slide into recession and Citigroup said it plans to cut 50,000 jobs, heightening fears the global economic slump has yet to reach its trough.

The Dow Jones industrial average fell 141.38 points, or 1.66 percent, to 8,355.93. The Standard & Poor's 500 Index dipped 14.00 points, or 1.60 percent, to 859.29. The Nasdaq Composite Index was off 18.50 points, or 1.22 percent, at 1,498.35.

WASHINGTON - Production by U.S. industries climbed strongly in October following an enormous drop - the biggest in 62 years - that was caused by hurricanes and labor unrest.

Industrial production increased 1.3% compared with the month before, the Federal Reserve said Monday. Production fell a downwardly revised 3.7% in September; originally, September output was seen falling 2.8%.

The 3.7% drop was the largest since 5.0% in February 1946. The Fed attributed the revision partly to a larger estimate of the damage of Hurricanes Gustav and Ike on the chemical industry.

Capacity utilization increased to 76.4% in October. September capacity use was 75.5%, revised down from a previously estimated 76.4%. The 1972-2007 average is 81.0%.

Economists expected industrial production to rise 0.4%, with a capacity utilization rate of 76.7% for the month. "Industrial production in September and October was substantially affected by the hurricanes and a strike in the commercial aircraft industry," the Fed said, referring to machinists striking at Boeing Co. (BA).

Excluding those special factors, total industrial production was estimated to have fallen around 2/3 percent in both September and October, the Fed said.

It said the hurricane-related disruptions lowered the change in total industrial production in September about 2 1/2 percentage points. The return to operation in October of most of the affected facilities boosted the change in output about 2 percentage points.

The Fed said the aircraft strike reduced industrial production 1/2 percentage point in September and an additional 0.1 percentage point in October. Over the 12 months ending in October, industrial production was 4.1% lower.

Manufacturing production increased 0.6% in October, after falling 3.7% in September. Manufacturing capacity utilization increased to 73.8% from 73.5%. Manufacturing of motor vehicles and parts fell 3.5% last month compared with September. It rose 1.3% in September compared with August.

For the year, auto and parts production was down 18.4%. Excluding motor vehicles and parts, industrial production would have increased 0.2% in October. Production ex-auto in September dropped 3.7%. U.S. utilities output climbed 0.4% in October and the sector's capacity usage was 83.5%, up from 83.3% in September.

Mining output surged 6.1% in October and mining capacity usage was 89.0%, up from 84.0%. The Fed said most crude oil and natural gas operations in the Gulf of Mexico were brought back online after the storms. Mining plummeted in September by 8.5%.

Machinery production fell by 1.7% in October after slipping 2.4% in September. Business equipment decreased 2.2% in October. Production of construction supplies fell 1.1% in October after dropping 1.9% in September. Output at the nation's technology firms decreased 0.9% in October after slipping 0.7% in September.

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Sterling jumps on profit taking but downtrend intact

LONDON - Sterling rose against the dollar on Monday as traders took profits on the pound's tumble last week and shook off the lack of a major break-through on global economic policy at a weekend meeting of world leaders.

The pound rose more than 1 percent against the dollar in thin trade, but hovered near a record low on a trade-weighted basis as only limited progress at a G20 gathering, along with more grim UK economic data, kept intact the view that a British recession will likely be deep and painful.

The Confederation of British Industry said the UK will suffer its sharpest economic contraction in nearly 20 years in 2009 and a housing survey showed asking prices for UK homes tumbled 2.9 percent in November alone. Sterling's downtrend remains firmly intact after having plummeted around 25 percent against the dollar and 16 percent versus the euro so far this year.

"Sterling still remains vulnerable," said Steve Barrow, head of G10 currency research at Standard Bank. "The G20 outcome is not positive for assets like stocks, which should keep sterling weak in the broad sense."

But he said the pound's relative buoyancy on Monday may be a sign that the pace of losses may be slowing slightly.

Sterling rose roughly 1.3 percent to a session high of $1.4964 by 0928 GMT but hovered in range of $1.4560 hit late last week, its weakest level since mid-2002, as expectations that a global recession will likely hit the UK harder than other countries continued to undermine the currency.

The euro fell 1 percent to 84.85 pence, off last week's record high of 86.62 pence, according to Reuters data.

Against a trade-weighted basket of currencies, the pound was at 80.6. On Friday, the UK currency fell as far as 80.5, its weakest level since early 1996, and approaching a record low on Bank of England data dating back to 1990.

Comments from the opposition UK Conservative Party's finance spokesman that the government's plan to borrow its way out of a sharp downturn could spur a run on the pound helped keep the UK currency mired near its 6-1/2-year low against the dollar and the all-time trough versus the euro.

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VW, banks drag European shares down at midday

LONDON - European stocks fell 2 percent at midday on Monday, with banks sharply lower and Volkswagen  tumbling after it said group vehicle sales fell 5.1 percent in October.
       
At 1207 GMT the pan-European FTSEurofirst 300 index was down 2 percent at 842.67 points after moving in and out of positive territory in early trade.
      
The index has lost more than 44 percent this year, hurt by a credit crisis and several developed economies going into recession. The Group of 20 world leaders agreed on Saturday to a raft of fiscal and monetary steps to rescue the global economy, but it was left to individual governments to tailor their response to their own circumstances.
      
"There is disappointment that the G20 didn't come up with concrete plans," said Philippe Gijsels, senior equity strategist at Fortis Bank, in Brussels. "Though I wouldn't read too much into that.
     
"I still think we're in the process of finding a bottom in the market, and there will be a bear market rally by the end of the year, as bad news is now priced in."
     
He added: "There's not too much in terms of economic or corporate data this week. But it is encouraging that governments and central banks understand the situation, and are acting, and cutting rates. " 
     
Volkswagen fell 10 percent after it said group vehicle sales fell 5.1 percent in October. This made the automobiles sector a major loser, though shares in rival German car maker BMW and Daimler both added 0.9 percent, while tyre maker Continental rose 4.6 percent as traders cited hopes of German or U.S. state aid for the sector.
     
Among banks, which took the most points off the index, Standard Chartered fell 3.7 percent following weekend press reports that it is investigating whether to raise billions of pounds to bolster its capital base, and has asked JP Morgan and Cazenove to consider options for a capital injection. Dresdner cut its price target for the bank to 1,300 pence, from 2,100 while keeping its "buy" rating.    
      
UBS was down 6.3 percent, after revealing its new plans for executive pay. while HSBC shed 3 percent and BNP Paribas lost 6.6 percent.
      
Deutsche Bank fell 3.2 percent despite the bank's chief executive being quoted as saying in an interview to a German paper that Germany's largest bank will not need money from the state to survive the financial crisis.
      
Around Europe, Britain's FTSE 100 fell 1.9 percent, Germany's DAX lost 2.6 percent and France's CAC fell 2.2 percent.
   
Nokia rose 2.8 percent, after Merrill Lynch upgraded the shares to "buy" from "neutral".  The broker said: "Looking six months out, we see the company re-accelerating its handset release process after significant problems in 2008."
      
It added that valuation was also a factor. On Friday, Nokia shares fell to a four-year low after the company lowered its estimates for the sales of handsets throughout the industry for 2009. Alcatele-Lucent was up 4.3 percent.
      
Swedish fashion giant Hennes & Mauritz was up 2.2 percent after posting sales figures that were in line with market forecasts on Monday, with revenue from established stores dropping a modest 2 percent.
      
But shares in Tesco, the UK's largest supermarket chain, fell 4.1 percent after JP Morgan cuts its rating to "underweight" from "neutral" and reduced its target to 290 pence from 340 pence. 
      
Oils were mostly lower, with crude prices falling more than 2 percent to less than $56 a barrel.  Total, ENI amd  Statoil, were down 1.4 to 3.2 percent.       
      
Shares in HeidelbergCement tumbled 15.9 percent after the Financial Times Deutschland newspaper said the company's majority stake holder, the Merckle family, could sell its stake to offset losses made on Volkswagen stock.
      
Parmalat SpA shares fell 5.5 percent after the Italian dairy company said on Friday it is cutting its full-year forecast for earnings before interest, tax, depreciation and amortisation. 

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ASIA MARKETS: Tokyo, Shanghai Advance As Sydney, Seoul Retreat
 
Asian markets ended mixed Monday in a session marked by thin trading volumes, with Japanese stocks erasing early declines to bounce back as investors shrugged off news that the country has slid into a recession.
 
Shanghai-listed shares extended gains into a fourth straight session on expectations the government will unveil more measures to boost consumption, with airlines such as Air China rising sharply on reports they may receive government aid.
 
But the rest of the region mostly declined on steep pre-weekend losses on Wall Street and disappointment that leaders of the G20 group of nations didn't announce any strong economic stimulus measures.
 
"We have to recognize that some investors have recovered their confidence on the back of the Chinese market [gains recently]. But still there is lot of volatility and some believe fundamentals are going to deteriorate further. That's why investors in Asia are quite unwilling to enter the market," said Steven Leung, director at UOB Kay Hian.

The Nikkei 225 Average dropped as much as 2.9% during the session, only to bounce back to end 0.7% higher at 8,522.58. The broader Topix index rose 0.4% to 850.49.
 
The rebound came in spite of data released by Japan's Cabinet Office earlier in the day, which showed the country's third-quarter gross domestic product shrank 0.1% over the previous three months, or at an annualized rate of 0.4%. The data also showed Japan's GDP contracted a revised 0.9% during the April-June period from the previous quarter, confirming the country had entered a recession.
 
Matt Robinson, an economist at Moody's Economy.com noted in a report the data showed "the sun has set on Japan's longest post-World War II period of expansion."
 
He added that Japan could expect more fiscal stimulus in coming months, but "now more than ever, the fate of the Japanese economy lies with the rest of the world."
 
Hong Kong shares moved on either side of break-even a few times before ending lower, with the benchmark Hang Seng Index slipping 0.1% to 13,529.53 and the Hang Seng China Enterprises Index losing 0.8% to 6,968.09.
 
Shanghai up; Sydney, Mumbai down On mainland China, the Shanghai Composite index advanced 2.2% to 2,030.48.
 
"I think there is more room for the Chinese government to launch more measures. Not only an interest rate cut, but maybe more policies like a cut in the tax rates to stimulate consumption," said UOB's Leung.
 
Shares of Chinese airlines soared on a Reuters report the state-owned parent company of Air China was seeking a cash injection from the government. In Hong Kong trading, Air China shares  jumped 5.5%, China Eastern Airlines Corp. (CEA) soared 9.8% and China Southern Airlines Co. (ZNH) climbed 10.1%.
 
In Shanghai, Air China and China Southern surged 9.9%, while China Eastern gained 10%. Elsewhere, India's Sensitive Index, or Sensex, lost 3.1% to 9,093.77 in afternoon trading, as investors sold off banking shares amid concerns of rising bad loans amid weakening economic growth.
 
ICICI Bank (IBN) stock tumbled 7.8% and HDFC Bank (HDB) sank 6.8%, while State Bank of India gave up 2.4%.
 
Australia's S&P/ASX 200 dropped to its lowest level since September 2004, before paring some losses to end down 2.5% at 3,653.
 
South Korea's Kospi struggled to stay in positive territory, before ending 0.9% lower at 1,078.32. New Zealand's NZX 50 index shed 0.9% to 2,741.92 and Taiwan's Taiex ended 0.3% lower at 4,439.80, while Singapore's Straits Times index lost 0.4% to 1,751.65 by late afternoon.
 
The losses came amid disappointment over the outcome of the G20 meeting over the weekend. "There was no particularly strong stimulus or statement from the G20. Whilst realistically people shouldn't be expecting anything too positive from there, there is always a disappointment if you don't get anything from one of those meetings," said Andrew Sullivan, a sales trader at Main First Securities in Hong Kong.
 
Separately, Merrill Lynch economists wrote in a report that investors may have been hoping for China and Japan to use their foreign exchange reserves to top up International Monetary Fund resources and make an explicit announcement about a coordinated fiscal package.
 
"We would not permanently rule out any of the above measures. However, the delay in announcing them suggests that one, it's not easy to reach consensus, and two, [that] the global policy response may be nearing its limits," they wrote.
 
In Tokyo, exporters rebounded from early lows on bargain buying, with shares of Honda Motor Co. (HMC) rising 1.7%, while Sony Corp. (SNE) advanced 0.7%.
 
Nissan Motor Co. (NSANY) ended 0.8% down after the Japanese automaker reportedly said Friday that it will cut production. The company plans to lower domestic output by 72,000 cars and trucks during the remainder of the fiscal year through March, according to an Associated Press report.
 
Shares of Sumitomo Mitsui Financial Group (SMFJY) shrank 2.2% after the banking giant Friday reported a 51% drop in quarterly profit.
 
Shares of Suzuki Motor Corp.  advanced 1.2% in Tokyo, before media reports said General Motors Corp. (GM) has sold its 3% stake in the Japanese automaker for $230 million.
 
Resource stocks declined on dropping crude-oil prices, with BHP Billiton (BHP) sliding 4.9% in Sydney and Inpex Corp.  shedding 3.4% in Tokyo. Cairn India dropped 4.5% in Mumbai.
 
December crude-oil futures dropped a further 93 cents to $56.11 a barrel in electronic trading, after declining $1.20 to $57.04 a barrel on the New York Mercantile Exchange Friday, for a weekly loss of nearly 7%.
 
In Asian currency trading, the U.S. dollar changed hands for 97.02 yen, compared with 96.81 yen on Friday.

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Gold's supported, but gains seen capped

LONDON - Physical demand helped support gold on Monday, but analysts say a higher dollar, lower oil prices and receding inflationary worries will cap prices in the short-term.

However, analysts said that over the longer term, a substantial depreciation of the dollar will help boost the precious metal. A weaker U.S. currency makes gold priced in dollars cheaper for holders of other currencies.

Spot gold was up at $742.75/744.75 an ounce at 1125 GMT compared with $741.05 an ounce late in New York on Friday, on stronger demand from jewellery makers.

The dollar slipped on Monday, but it is higher than in July when it hit record lows against the euro under $1.60. "We are quite bullish for gold the long term, primarily because we see the dollar weakening substantially on all this liquidity being pumped into the system," said Dan Smith, analyst at Standard Chartered.

To ease the credit crunch and financial crisis, central banks around the world have slashed interest rates and made available large amounts of cash to the banking sector. The realisation that financial problems would not be confined to the United States has helped bolster the dollar. But expectations of an acceleration of government debt issuance in the United States is likely to hit dollar sentiment over the coming year, analysts said.

"Given ... the unprecedented demand for physical, particularly gold coins and bars, and the possibility that the dollar strength is unsustainable longer term, we believe that precious metals could outperform," UBS said in a note.

Gold has struggled to maintain an uptrend since hitting a two-month high of $931 an ounce in early October. It is down nearly 30 percent since hitting a peak at $1,030.80 in March.

Reasons for gold's tumble since March include an easing of fears about runaway inflation, partly due to falling commodity prices, including oil, which is now trading around $56 a barrel from record highs above $147 an ounce in July.

Also behind gold's fall has been investors' need for liquidity and cash to cover losses on stock markets. Gold is often used as a hedge against inflation and financial market uncertainty, which was not allayed by a meeting of the Group of 20 countries over the weekend.

Governments from Washington to Beijing agreed to a raft of fiscal and monetary steps to rescue the global economy but it was left to individual countries to tailor their responses to their particular circumstances and industries.

A major industry in trouble is the auto sector, which has reported a rapidly deteriorating outlook and undermined confidence in the platinum market. Prices of platinum, used to make autocatalysts, have collapsed by more than 60 percent since a record high of $2,290 an ounce in March.

The platinum market is looking ahead to a report on the platinum and palladium markets from the world's top platinum refiner, Johnson Matthey, due on Tuesday. Platinum was at $823/843 an ounce from $833.50 late in New York on Friday, palladium at $216/221 from $213 and silver at $9.56/9.64 from $9.48.

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