US & World Daily Markets Financial Briefing 18-12-2008

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US STOCKS-Wall St edges up as jobless claims ease

NEW YORK - Wall Street edged higher in opening trade on Thursday as data on the labor market came in roughly in line with expectations, lifting optimism about the state of the anemic economy, but more companies warned of a continuing difficult environment.
      
Ingersoll Rand Co Ltd fell more than 2.5 percent after it lowered its fourth-quarter and full-year 2008 revenue and earnings estimates, citing weakness in Europe.
      
The number of U.S. workers filing new claims for jobless benefits fell last week, Labor Department data showed, but despite the decline, claims remain exceptionally high and are more than 200,000 higher than a year ago..
      
The Dow Jones industrial average rose 51.69 points, or 0.59 percent, at 8,876.03. The Standard & Poor's 500 Index edged up 4.31 points, or 0.48 percent, at 908.73. The Nasdaq Composite Index was up 5.80 points, or 0.37 percent, at1,585.11.

US Jobless Claims Fall; Still Signal Big Dec Job Loss
 
WASHINGTON - The number of U.S. workers filing new claims for state unemployment benefits declined as expected last week but remained at very high levels consistent with steep employment declines, as companies shed workers in response to falling demand and the credit crunch.

Initial claims for jobless benefits fell 21,000 to a seasonally adjusted 554,000 in the week ended Dec. 13, the Labor Department said in a weekly report Thursday. Economists surveyed by Dow Jones Newswires had expected claims would fall by 23,000.

Still, the four-week average of new claims, which aims to smooth volatility in the data, reached a fresh 26-year high, rising 2,750 to 543,750.

There were no special factors in the latest week, a Labor Department analyst said. The tally of continuing claims, those drawn by workers collecting benefits for more than one week in the week ended Dec. 6, fell 47,000 to 4,384,000. But that only offset a fraction of the prior week's mammoth 340,000 increase, suggesting it is taking the unemployed longer to find new work.

The data come after 11 months of declining nonfarm payrolls. Employers in November alone shed 533,000 jobs as the unemployment rate continued rising. The latest initial claims data include the survey week for the December payroll report.

"The claims data strongly suggests that December payroll losses will be greater than the average loss over the last three months, and could well be larger than the November decline," noted J.P. Morgan Chase economist Abiel Reinhart.

And any stabilization seems far off. For instance, automobile giant Chrysler LLC said Wednesday it will idle all of its factories in the U.S. for at least one month. General Motors Corp. (GM) and Ford Motor Co. (F) have also announced production cutbacks.

The Labor Department's seasonal adjustment factors do assume an increase in temporary automobile layoffs this time of year. But the announcements from automakers suggest much wider furloughs, meaning that even after seasonal adjustments, jobless claims could spike later this month and into January.

According to Thursday's report, the unemployment rate for workers with unemployment insurance held steady at 3.3%.

Not adjusted to reflect seasonal fluctuations, North Carolina reported the largest jump in new claims during the Dec. 6 week, 26,596, due to an increase in layoffs in the textile, furniture, lumber wood, fabricated metals and transportation equipment industries.

Wisconsin reported the largest decrease, 8,593, due to fewer layoffs in the construction, service and manufacturing sectors. Reflecting the bleak state of labor markets, Iowa was the only other state to report a decline in jobless claims of more than 1,000.

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FOREX-Euro surges broadly, hits 2-1/2 mth high vs dlr

LONDON - The euro surged across the board on Thursday, buoyed by expectations that euro zone interest rates will not fall as steeply as those in other major economies despite data pointing to worsening German business sentiment.

In thin volatile trade, the euro surged to a 2-1/2 month high against the dollar at $1.4719. By 1105 GMT, it was up 1.5 percent on the day at $1.4620.

The single currency also hit a fresh record high against sterling at 95.04 pence, according to Reuters data. Against the yen, the euro was up 2.5 percent at 128.96, after hitting a session high of 131.04 yen as Japan's finance minister said currency intervention was an option available to authorities

The euro has been on an upswing since the U.S. Federal Reserve cut rates -- a benchmark for the return on holding dollars -- to a historic low near zero on Tuesday and said it would take "all available tools" to help its economy.

Meanwhile, speculation that UK interest rates could fall sharply were fuelled by Bank of England Deputy Governor Charles Bean, who said UK interest rates could fall to zero

Minutes from the Dec. 3-4 rate-setting meeting showed policymakers had discussed cutting by a larger margin than the 100 basis point easing that took benchmark rates to 2 percent.

That contrasts with recent comments by European Central Bank members, who seem to be cautious about drastically reducing rates, where key rates now stand at 2.5 percent.

"The euro is picking up quite a lot of support -- the yield differentials have moved out and that may well be providing some support," said Ian Stannard, senior currency strategist at BNP Paribas.

Rate spreads between the euro zone and other countries have widened sharply in recent days, reflecting expectations for interest rate differentials to widen.

The implied euribor/short sterling rate spread widened as much as 15 basis points to 75 basis points, compared with around zero at the start of the month.

The euro's rise accelerated despite a weaker-than-expected reading of the Ifo institute's index on German business sentiment. The headline index fell to 82.6 in December from 85.8 in November, below expectations of 84.0.

"The Ifo confirms continued deterioration in the German economy but what is worrying is the pace of decline," said Audrey Childe-Freeman at Brown Brothers Harriman in London.

Still, "the ECB is reluctant to bring interest rates to zero and wants to wait in January, after cutting rates sharply in the past few months," she said.

Earlier this week, ECB President Jean-Claude Trichet said he was focused on ways to ensure its 175 basis points of rate cuts since early October were passed on to the real economy.

The dollar rose 0.8 percent to 87.99 yen, but remained trapped near 87.11, the lowest in more than 13 years. Recent comments by Japanese officials have kept speculation intact that authorities may intervene to rein in the currency's rise.

"You want to keep an eye on the yen with the MOF and finance ministry comments earlier in the day - that might be a catalyst to watch for euro/yen," said Jeremy Stretch, markets strategist at Rabobank in London.  "Alternatively it could be a presumption that people are nervous and that is exacerbating volatility."

Other traders said central bank bids were seen in euro/yen, but not related to currency intervention. The Fed's rate cut has raised pressure on the Bank of Japan to cut rates at a two-day meeting that ends on Friday.  Two-thirds of economists polled by Reuters this week expect the Japanese central bank to cut rates from the current 0.3 percent.

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Energy, bank stocks lead European shares lower

FRANKFURT - European shares were slightly down in choppy midday trade on Thursday with falls in blue chip energy and bank stocks outweighing the rises in drugmakers.

At 1157 GMT, the pan-European FTSEurofirst 300 index of top European shares was down 0.2 percent at 827.10 points, having traded between 823.20 and 833.02.

The index has fallen about 45 percent so far this year. Energy stocks led the fallers, taking the most points off the index, as oil CLc1 remained at less than $41 a barrel. BP, StatoilHydro, BG Group, and Royal Dutch Shell fell 1.2 percent to 3.6 percent.

However, grim data about the euro economy appeared to be already factored into the market. Germany's Ifo business climate index deteriorated sharply in December, falling to 82.6 from 84.0 in November, the lowest pan-German figure since reunification in 1990. "It's not a new thing that little attention is being paid to big European economic indicators," said Joerg Rahn, senior economist at MM Warburg.

"The markets are already looking ahead, one step further and special factors such as a year-end rally may play a role."

In the UK, British retail sales rose unexpectedly in November, while public sector net borrowing rose to its highest monthly total since records began, the Office for National Statistics said.

"The bigger picture is fundamentally disastrous," said Giuseppe-Guido Amato, investment analyst at Lang & Schwarz.

"But the sentiment of the market participants is bad enough that I think we could very well see a rally based on hope." "What you need now is commodities and shares in companies that have a good debt position."

Drugmakers added the most points to the index as investors turned to the relative safety of defensive stocks.

GlaxoSmithKline, AstraZeneca and Sanofi-Aventis were up between 1.5 percent and 3.3 percent. The DJ Stoxx European healthcare index has been the best performer this year, falling 20 percent compared with a decline of more than 60 percent for banks and miners as a credit crisis shook investor confidence.

Banks were lower with BNP Paribas retreating 7 percent after it said it could not proceed with Fortis stake acquisition as planned because of Brussels court decision.

HSBC fell 6.1 percent, investors worried about likely dividend cuts and capital raising at the bank. Retail stocks were lower after French retail giant Carrefour fell 8 percent as it warned it expected sales growth of 6.5 percent in 2008 at constant exchange rates, down from a previous target of about 7 percent.

The DJ Stoxx European retail sector index was 1.1 percent lower, with Metro and Marks & Spencer down 1.1 percent and 2.5 percent, respectively.

Across Europe, the FTSE 100 index was up 0.1 percent, Germany's DAX was 0.9 percent higher and France's CAC 40 was down 0.7 percent.

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Nikkei edges up as banks jump, BOJ meeting eyed

TOKYO - The Nikkei average edged up 0.6 percent on Thursday, as banks such as Sumitomo Mitsui Financial Group jumped on expectations the Bank of Japan will follow the Federal Reserve's move to cut interest rates to near zero.

But gains were capped by persistent concerns over the auto sector amid the global economic downturn and rises in the yen versus the dollar. Honda Motor slid after cutting its profit forecasts in its third warning this year.

Panasonic Corp dipped after Goldman Sachs agreed to the electronics giant's offer to buy its stake in Sanyo Electric Co Ltd, and Sanyo shares fell as the bid was below its share price and only slightly sweeter than one Goldman rejected earlier this month.

"A rise in bank shares supported the overall market throughout the day as expectations for a BOJ rate cut mount," said Shinji Igarashi, an equity manager in the sales department at Chuo Securities.

The benchmark Nikkei rose 54.71 points to 8,667.23, a one-week closing high. The broader Topix was little changed on the day at 838.69.

The dollar rose 0.8 percent to 87.95 yen, but stayed in sight of 87.13 yen hit on Wednesday, the lowest since mid-1995, weighing on some exporters. "Exporters will continue to suffer unless the yen stops appreciating, especially against the dollar," said Yuuki Sakurai, a general manager of financial and investment planning at Fukoku Mutual Life Insurance.

Exporters are feeling the pinch from the yen's surge as they had made projections for this business year based on the assumption that the dollar would move around 100 yen. A stronger yen erodes exporters' overseas profits when turned back into yen.

Banks extended gains booked on Wednesday. Mitsubishi UFJ Financial Group, Japan's biggest bank, rose 4.4 percent to 542 yen. No. 2 Mizuho Financial Group soared 8.1 percent to 256,800 yen and No. 3 Sumitomo Mitsui Financial Group surged 8.5 percent to 384,000 yen.

Panasonic slid 0.5 percent to 1,021 yen, while Sanyo shed 1.4 percent to 141 yen. Honda slid 3.5 percent to 1,825 yen after Japan's No. 2 automaker slashed its operating forecast by two-thirds as the global recession batters car sales and sends the yen soaring.

Trade was light on the Tokyo exchange's first section, with 1.9 billion shares changing hands, compared with last week's daily average of 2.3 billion. Declining stocks outnumbered advancing ones, 969 to 646.

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PRECIOUS-Gold climbs as dollar weakens vs the euro

LONDON - Gold rose in Europe on Thursday as the dollar weakened, but remained rangebound, with analysts expecting the metal to consolidate after recent sharp gains.

Investor interest in the precious metal remains robust, with bullion holdings of the world's largest exchange-traded fund, the SPDR Gold Trust, rising to a record level.

Spot gold was quoted at $876.60/878.60 an ounce at 0953 GMT, up from $866.90 late in New York on Wednesday, when prices rose to a two-month peak of $881.20.

Prices have risen more than $130 an ounce month-on-month as the dollar weakened against the euro. "For the rest of the year, I think we will basically see some consolidation of the gains we have seen in the last few weeks," said BNP Paribas analyst Michael Widmer. "A gold price movement of the size of yesterday would be suprising."

The precious metal was taking support from some fresh dollar weakness, as the U.S. currency slipped to fresh 2-1/2 month lows against the euro.

The euro briefly trimmed gains after a weak reading of the German business climate by the IFO research institute, but remains firmer.

The dollar has been suffering since the Federal Reserve slashed interest rates to between zero and 0.25 percent on Tuesday. A weaker U.S. currency supports gold, which is often bought as an alternative investment to the dollar.

The other main external driver of gold, oil prices, were little changed around $40 a barrel as the market digested an output cut from OPEC on Wednesday.

Investor demand for exposure to bullion prices through exchange-traded funds, which issue securities backed by physical gold, remained firm.

The world's largest gold-backed ETF, the SPDR Gold Trust GLD, said its bullion holdings rose 6.1 tonnes or almost 1 percent on Dec 17 to a new record high.

The trust, which issues securities backed by physical stocks of gold, now holds 775.33 tonnes of bullion. Its holdings are up 17.5 tonnes or 2.3 percent week-on-week. However, demand for small investment products such as coins and bars has dipped in Europe from recent highs, traders say.

The market is looking ahead to economic data due out later in the session for clues as to the next direction for gold. "Watch out for the U.S. Philadelphia Fed Business outlook and leading indicator indices later today -- negative statistics are expected for both," said Standard Bank analyst Manqoba Madinane. "Worse-than-expected data should keep the greenback on the back foot, which should also benefit precious metals."

Among other precious metals, platinum and palladium inched up, tracking gains in gold, despite more bad news from the car industry, the main consumer of both metals.

U.S. carmaker Chrysler said it will halt its factory operations for at least a month, putting new pressure on the government to help automakers.  Goldman Sachs cut its global automotive production and sales forecasts, citing a sharp decline in the operating environment.

Meanwhile industry association ACEA said European new commercial vehicle sales dropped a record 30.8 percent year-on-year in November.

Spot platinum climbed to $875/880 an ounce from $863.50, while palladium was at $178.50/183.50 from $175.50. Silver was at $11.40/11.48 an ounce from $11.37.

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