US & World Daily Markets Financial Briefing 20-11-2008

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US STOCKS-Wall St rout sends S&P 500 to six-year low

NEW YORK - U.S. stocks extended their slide on Thursday, sending the benchmark S&P 500 index to its lowest in more than six years, as the latest data showed the economy sinking more and investors worried about possible failures by U.S. automakers without a government bailout.
      
Government data showing that the number of U.S. workers filing new claims for jobless benefits hit their highest level in 16 years in the recent week diminished the appetite for riskier assets even more, along with worries about the future of Citigroup.
      
Shares of the major U.S. bank, a Dow component, slid almost 15 percent to its lowest level in more than 13 years as investors fretted about more financial sector losses, while shares of General Motors plunged more than 20 percent and Ford  slid more than 15 percent.
     
The worsening economic picture triggered technical breaches by the major indexes, a move that threatened to unleash more turmoil as the bear-market descent deepens on signs the economy is spiraling into a deep slump. The S&P 500 fell to its lowest level since Oct 2002, and is now 50 percent off its record high hit in October 2007.
      
U.S. crude futures briefly fell below $50 a barrel for the first time since Jan. 18, 2007. "The decline in the oil prices is a barometer of more economic sliding globally," said Andrew Kanaly, chairman of Kanaly Trust Company in Houston, Texas.
      
"All you are left with at this point is how much redemption and forced selling is left out there? This got one rethinking how many times is one going to take a beating before realizing the market isn't going to bounce."
      
The Dow Jones industrial average slid 214.49 points, or 2.68 percent, to 7,782.79. The Standard & Poor's 500 Index  plunged 29.82 points, or 3.70 percent, to 776.76. The Nasdaq Composite Index slumped 39.64 points, or 2.86 percent, to 1,346.78.
      
Citigroup shares tumbled 15.3 percent to $5.41 on the New York Stock Exchange, where the stock earlier slid as far as $4.77. Shares of JPMorgan , another major U.S. bank, were a top drag on the Dow, falling more than 14 percent to $24.14. The S&P 500 index fell nearly 4 percent.
      
Saudi Prince Alwaleed bin Talal said he would boost his stake in Citigroup to 5 percent. The news initially sent Citi shares up as much as 6 percent but the boost evaporated.
      
The drop in oil prices pulled shares of energy companies down, with Chevron Corp shares tumbling 5 percent to $67.18, while those Exxon Mobil Corp  declined to 2.6 percent to $71.43. With Congress winding down its session, the auto makers appeared to have made very little progress in convincing Washington to agree to a $25 billion rescue package that the automakers say is necessary to avert bankruptcy.
      
Even after two days of pleas for aid by auto executives on Capitol Hill, the fate of General Motors  , Ford and Chrysler hangs on the balance. GM's stock tumbled to $1.92 and Ford tumbled to $1.09.
      
The automotive executives on Wednesday predicted a far-reaching calamity for the U.S. economy without a government lifeline. In other economic news, factory activity in the U.S. Mid-Atlantic region fell to another 18-year low in November. 

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FOREX-Recession fear sweeps yen up; high-yielders fall

LONDON - The low-yielding yen extended a broad rally against major currencies on Thursday after downbeat economic forecasts from the Federal Reserve underlined dire global conditions and heightened risk aversion. Investors were keen to continue cutting exposure to risk, and unwinding yen-funded carry trades in the process, due to fears about the viability of bank giant Citigroup Inc and major U.S. automakers.

Meanwhile, at least one among household names General Motors Corp, Ford Motor Co and Chrysler LLC is at risk of liquidation if a last-minute bail-out plan fails. Analysts said that as moves in the yen were correlating strongly with equities, further steep stock market losses would hasten further rises for the Japanese unit, which could take it back to 13-year highs against the dollar.

"Risk aversion has just completely dominated markets overnight -- this was accentuated by the minutes from the FOMC meeting last night," RBC currency strategist Christian Lawrence said. "We have a clear under-performance of high-yielders relative to their lower-yielding counterparts. You could have the worst data in the world coming out but the yen will still rally on risk aversion," he added.

By 1113 GMT, the euro had fallen 0.4 percent to 119.55 yen, hovering above a one-week low of 118.59 yen hit according to Reuters data earlier in the global session.

The dollar was down half a percent at 95.45 yen, while the higher-yielding Australian dollar tumbled roughly 2 percent to 59.76 yen. The traditional safe-bet Swiss franc was also hammered against the yen and dollar, losing out in the battle of low-yielding currencies as Japanese and U.S. borrowing costs now significantly undershoot those of Switzerland.

While the dollar was trapped in narrow ranges against the euro and a basket of major currencies  it gained traction versus the higher-yielding Australian and New Zealand dollars on continued investor deleveraging. The New Zealand currency slipped more than 1 percent to $0.5339, its lowest level since early 2003, and tumbled 1.5 percent against the yen.

The minutes released on Wednesday from the Fed's October policy meet showed the central bank sees U.S. growth contracting in the second half of the year and the first half of 2009, even after a 50 basis point interest rate cut to 1.0 percent. This kept prospects high that U.S. rates could fall even further as the Fed tries to minimise the impact of the recession.

Major central banks have been slashing rates aggressively in an attempt to boost their economies during an extreme slowdown. Figures this month show that Japan and the euro zone fell into a recession in the third quarter. "People are starting to give up on the hope that the economy is going to recover," said David Woo, head of currency research at Barclays Capital in London.

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Asia Markets: Sell-off gathers steam; Nikkei sinks below 8,000

HONG KONG - Asian stocks suffered sharp losses Thursday, with Japan's Nikkei edging back toward the past month's lows, with Sony Corp. under pressure in a glum session for electronics makers after data showed Japan's exports continue to decelerate.
 
Tokyo's Nikkei  extended loses in the afternoon session, falling 6% to 7,774.63, dipping below the 8,000-point level for the first time since Oct. 29. Japanese exports declined 7.7% in October from a year earlier, their biggest drop in almost seven years, according to data released Thursday by the Finance Ministry.
 
Japanese shares were also pressured after the U.S dollar weakened to 95.75 yen, compared to 95.85 yen in late Wednesday in New York and 96.75 yen there late Tuesday.
 
Australia's S&P/ASX 200 was down 3.4% at 3,381.40, marking its lowest intraday level since August 2004. The Hang Seng Index ended the morning session 5.5% lower at 12,111.51, South Korea's Kospi fell 5.6% at 960.69 and China's Shanghai Composite was down 1.2% at 1,993.62.
 
Brokers said the regional downtrend remained intact as hedge funds were forced sellers of shares to meet investor redemptions.
 
"It's all about the October lows," said Benjamin Collett, head of hedge fund sales trading at Daiwa Securities in Hong Kong.  "Investors are hoping we can hold on to the lows that were formed in October, or hold above there; if we don't, the outlook is very, very bad." 

New Zealand's NZSX-50 retreated 2.3%, Taiwan's Taiex was down 4.2%,  Singapore's Straits Times fell 3.7%, and India's Sensex gave up 4.3%.
 
In action in Tokyo, Sompo Japan Insurance  led the sector lower on concerns of sharply-reduced earnings for the current fiscal year because of losses related to its large equity holdings. Shares of Sompo Japan were untraded amid a flood of sell orders at 679 yen.
 
Among advancers were telecom-equipment maker ZTE Corp . The Hong Kong-listed firm climbed 2.5% as investors bet it could be a beneficiary of new equipment spending by mainland wireless carriers as part of the likely 3G licensing at year-end. Comba Telecom , another telecom-equipment provider, saw its Hong Kong-listed shares jump 6.2%.
 
Makers of equipment used to produce semiconductors were lower as industry figures pointed to a 68% decline in October orders. Shares of Tokyo Electron  and Advantest Corp.  were down 7.3% and 3.9% respectively.
 
Chipmakers were lower after an industry association forecast global sales would fall 5.6% next year, marking the first decline since 2001. Hynix Semiconductor shares were down 12.2%. Samsung Electronics Ltd. (SSNGY), the global leader in memory chip production, was down 2.4%.
 
In  Sydney, Rio Tinto led the commodity sector lower, its shares falling 8.4%, while  Australia and New Zealand Bank retreated 4.8%
 
Consumer electronics firms such as Sony Corp and Canon Inc were also under pressure from the combination of stronger yen and data that showed consumers in Asia that had held up fairly well while U.S. counterparts' curtailed spending was beginning to show signs of weakness. Shares of Sony were down 5.4% and Canon was off 5.7%.
 
Japan's trade deficit hit 63.9 billion yen ($667 million), as imports climbed 7.4% on month, according to the preliminary Finance Ministry preliminary data.  Japan's trade surplus with the U.S. contracted 27.5%, while that with the rest of Asia fell 38.7%.
 
December crude-oil futures fell as much as 67 cents to $52.95 a barrel in electronic trading in Tokyo. In Nymex trading Wednesday, the front-month contract eased 77 cents, bring its cumulative four-session loss to almost 8%.

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Jewellery, investment demand buoy gold

LONDON - Gold prices rose on Thursday, buoyed by interest from jewellery makers and investors seeking safety, but a stronger dollar and lower oil prices are expected to weigh on sentiment.

Spot gold was higher at $743.30/745.30 an ounce at 1119 GMT from $732.40 in New York late on Wednesday when it touched $762.30 an ounce, its highest in more than a week.

Data from the World Gold Council showing an 18 percent jump in demand for gold to 1,334.4 tonnes and a 56 percent rise in investment demand to 382.1 tonnes in the third quarter has helped sentiment. "Investment demand for gold should hold up because there is strong risk aversion in the markets right now. That's why we are optimistic gold will hold up," Barbara Lambrecht, analyst at Commerzbank, said.

Gold is used as a hedge against turmoil in financial markets -- equity prices in Europe and the United States are trading at their lowest levels in more than five years. It is also used as an alternative currency to the dollar when it is falling. But when the U.S. currency is rising it makes metals denominated in dollars more expensive for holders of other currencies.

The dollar hit a one-week high against the euro after the U.S. Federal Reserve slashed growth forecasts for the world's largest economy in 2009, which analysts say could mean deep interest rate cuts. [USD/] "Gold is following the dollar closely," Lambrecht said. "There is a risk recession could dampen jewellery demand."

Fears of rising inflationary pressures, crisis in credit markets and the dollar's collapse earlier this year pushed gold prices to a record $1,030.80 an ounce in March. But now weighing on gold is the prospect of deflation, with recession now a reality in Japan and Germany.

"Deflationary impulses in the economy, according to monetary theory, are negative for gold prices, as they increase the purchasing power of currencies and reduce the need to own gold as an inflation hedge," HSBC said in a note.

"A low risk of outright deflation may help put a floor under gold prices ... The inability of oil to rally is another sign of deflation." Crude oil prices have tumbled by more than 60 percent to about $53 a barrel since a record above $147 a barrel in July on fears of collapsing growth and demand.

Growth fears have also hit platinum used to make autocatalysts that clean car emissions. Platinum prices have plunged from $2,290 an ounce in March. News of falling car sales and a rapidly deteriorating outlook for the auto sector accelerated the sell-off.

Doubts about whether a $25 billion rescue plan to bail out U.S. auto makers will be passed could further damage sentiment. "It doesn't look as if it's going to happen," a London-based trader said. "But they've got two days."

Platinum was at $804/824 an ounce from $808.50 late on Wednesday and silver at $9.35/9.43 from $9.24. Palladium jumped more than 6 percent to $192 an ounce on bargain hunting. It was last at $181 from $180.50.

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European shares fall on recession woes; Ahold gains

FRANKFURT - European stocks fell on  Thursday as fears of the impact of a recession hammered shares
in banks and raw material producers, but supermarket group Ahold  rallied on a higher than expected quarterly profit.
   
By 1240 GMT, the FTSEurofirst 300 index of top  European shares was down 2.7 percent at 790.05 points, having  touched a 5-1/2-year low of 782.67 points.
 
The slide echoed weakness in U.S. and Asian equity markets. "The mood among investors continues to be marked by an  extreme risk aversion," said Markus Reinwand, equity strategist  at German bank Helaba.
   
European banks lost ground after Citigroup's shares  tumbled 23 percent to a 13-year low overnight as investors  questioned the U.S. bank's survival prospects.
   
On Thursday, however, Citigroup rose 6.3 percent before the  bell after CNBC reported that Saudi Prince Alwaleed plans to  boost his stake back to 5 percent.
   
In Europe, Credit Suisse fell 8.4 percent, Dutch  financial group ING lost 7.1 percent, Germany's  Deutsche Bank dropped 6.7 percent and Spain's Banco  Santander traded 6.6 percent lower.
   
But Royal Bank of Scotland swam against the tide,  rising almost 13 percent ahead of a shareholder meeting to  approve a fundraising plan. "It's positive sentiment ahead of  the vote and the market expects a good outcome," a trader said.
   
Insurers also fell, tracking a 10-percent-plus drop  overnight for U.S. peers on the Dow Jones sector index.
Britain's Aviva lost 12.9 percent, French AXA  lost 5.1 percent and Swiss Life dropped 6.4 percent. All but two of the 38 industry groups in the FTSEurofirst  300 index were in the red at 1220 GMT, with analysts pointing to  worries about a global economic downturn.
   
That was a key reason behind a surprise 100 basis point cut  in the Swiss National Bank's interest rates, which took the  target range for the 3-month Swiss franc LIBOR to 0.50-1.50  percent.
   
Societe Generale, in a note on Germany, the euro zone's  biggest economy and the world's number one exporter, said: "The  deepening of the banking crisis has made corporate funding  conditions much tighter, considerably weakened international  demand and intensified downward pressure on corporate margins."
   
Standard & Poor's Equity Research downgraded the industrial  sector to "underweight", saying: "Cyclical stocks have suffered  a further leg down and many companies are now likely to undergo  significant declines in capacity utilisiation".
   
Ahold shares shot up 7.5 percent after the group  reported a higher-than-expected 11 percent rise in core  quarterly profit and reiterated its full-year margin target. Dresdner Kleinwort said the results "confirm that an  acceleration in sales is no longer coming at a cost to margins"  and that it was "encouraging to note that this is coming at a  time when U.S. retailers are reporting an even more pressured  U.S. consumer backdrop".
 
Belgian metals and specialty materials maker Umicore , a leading manufacturer of catalysts for cars, was down  15.2 percent after a profit warning linked to the weak auto  market.
   
"Conditions are exceptional now, with destocking and production cuts in the auto industry," said ING analyst Arnaud  Goossens.
   
The price of palladium, two thirds of which is used in the auto industry, fell 15 percent overnight, with Fairfax citing destocking.
   
"Markets are considering the fall out of an autos  manufacturer going under," Fairfax said in a note. Carmaker PSA Peugeot Citroen was down 4.2 percent  after unveiling plans to cut 2,700 jobs and saying that due to  the financial crisis and the sector's turmoil, car sale volumes  in main European markets would drop by at least 10 percent in  2009 and 17 percent in the fourth quarter.
   
Renault shares fell 6.4 percent and Porsche  lost 2.8 percent. Basic resources, which includes miners and steel  makers, was the top loser among the DJ Stoxx sector indexes with  a loss of 4.1 percent.
   
Shares in ArcelorMittal, the world's biggest steel  company, fell 7.6 percent while mining groups RIO Tinto  and BHP Billiton shed 4.6 percent and 4.1 percent,  respectively.
   
Fears that recession will dent demand for oil saw the price  of crude fall 2.5 percent to $52.3 a barrel, hitting  sector stocks such as OMV, down 4.5 percent, ENI , down 2.5 percent, Royal Dutch Shell, down 1.4  percent and Petroplus, down 2.5 percent.

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