US & World Daily Markets Financial Briefing 26-11-2010

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Geopolitical Concerns Lead To Initial Weakness On Wall Street

Stocks showed a notable move to the downside at the start of trading on Friday, giving back ground after showing a strong upward move in the previous session. The major averages all moved sharply lower amid renewed geopolitical concerns.

The initial weakness in the markets reflected continued concerns about rising tensions between North and South Korea as well as renewed worries about financial stability in Europe. The concerns have led some traders to move their money out of stocks and into less risky assets.

Traders are keeping a close on developments on the Korean peninsula, as North Korea has warned that planned military exercises by the U.S. and South Korea have put the region on the "brink of war."

North Korea has also reportedly conducted a series of artillery drills and warned the South that it will face a "shower of dreadful fire" if it encroaches on the North's "dignity and sovereignty even in the least."

Stocks are also moving lower amid renewed concerns about debt problems in Europe after a German newspaper reported that members of the European Union and the European Central Bank have urged Portugal to request financial aid in order to avoid a debt crisis.

While Portugal, the European Commission, and the ECB have denied the report, the story has still raised concerns about the financial stability of Europe following the recent troubles in Ireland.

Gold stocks are turning in some of the worst performances in early trading, as the price of gold has come under pressure amid some strength in the value of the U.S. dollar. With the price of gold falling by nearly $18 an ounce, the NYSE Arca Gold Bugs Index is down by 2 percent.

Most other resource stocks have also come under pressure amid a decrease in commodities prices, while brokerage, electronic storage, and housing stocks are also seeing early weakness.

The major averages have edged up off their lows for the young session in the past few minutes but remain firmly in the red. The Dow is down 95.21 points or 0.9 percent at 11,092.07, the Nasdaq is down 12.41 points or 0.5 percent at 2,530.71 and the S&P 500 is down 9.00 points or 0.8 percent at 1,189.35.

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Early Signals Point To Sharply Lower Open For TSX

Bay Street stocks may open sharply lower Friday amid renewed worries over the euro zone debt situation and tensions in Korea, with discouraging cues coming in from the global equity markets. While most Asian markets ended lower, European stocks were lingering in the red amid weakness in mining stocks.

Speculation that Spain and Portugal will also be forced to seek a bailout plan hampered the euro and commodities prices.

U.S. stock futures were pointing to a sharply lower open. The U.S. markets will be closed in early afternoon.

On Thursday, the S&P/TSX Composite Index added 43.82 points or 0.34 % to 12,945.81, gaining for a second session.

The price of crude oil edged back near $83 as the U.S. dollar remained firm versus a basket of currencies. Crude for January was down $0.77 to $83.09 a barrel.

The price of gold slipped back near its weekly low amid renewed worries over the debt situation in Spain and Portugal. Gold for December slipped $18.90 to $1,354.10 an ounce.

In corporate news from Canada, oil and gas explorer Ripper Oil and Gas swung to profit in second quarter, reporting net income of C$1.3 million or C$0.06 per share compared to a net loss of C$0.4 million or C$0.02 per share for the year-ago quarter.

Automobile components company Exco Technologies reported higher fourth quarter net income of C$2.4 million or C$0.06 per share, compared to C$364,000 or C$0.01 per share for the year-ago quarter. The company said that its quarterly cash dividend will be increased 25% to C$0.025 per share.

Junior oil and gas firm Twin Butte Energy said it would buy conventional heavy oil producing assets mainly in the Frog Lake area of North Eastern Alberta for $19.50 million.

Oil and gas explorer TriOil Resources reported a narrower third quarter net loss of C$3.47 million or C$0.14 per share compared to C$2.27 million or C$0.79 per share last year.

Radio Frequency Identification products maker Ipico Inc reported a narrower third quarter net loss of C$1.60 million or C$0.03 per share compared to a loss of C$2.15 million or C$0.04 per share in the prior year quarter.

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Bleak morning session for Europe

European bourses are a sea of red, with many leading indices looking at suffering treble-digit falls, while others are already experiencing them. Investors are keen to close down positions ahead of a week-end which could see unwelcome developments in the Korean conflict and a worsening of sentiment over the future of the euro-zone.

Reports indicate that North Korea fired on South Korea’s Yeonpyeong Island today, although South Korea has opted not to confirm the reports, citing military policy.

Meanwhile, South Korean president Lee Myung-bak has appointed Kim Kwan Jin as his new defence minister after Kim Tae-young tendered his resignation yesterday. The new defence minister was formerly chairman of South Korea’s joint chiefs of staff and has been in the military for more than four decades. His first task is likely to be to beef up the military presence in Yeonpyeong.

In Paris the CAC 40 is down 66 points at 3,694 while in Germany the DAX is down 92 at 6,787. Spain and Italy remain the hardest hit of Europe’s major bourses, with Spain’s IBEX 35 down 255 points at 9,466 while Italy’s MIB index is 324 points lower at 19,621.

European sovereign debt worries are once again a drag on banks. In France BNP Paribas, SocGen and Credit Agricole are all lower, while in Germany Commerzbank leads the market down.

Spanish banking giant Santander is sharply lower, as are Spanish peers Bankinter, Banco Popular and BBVA; all are 4% or more down from last night’s close.

Not to be left out, Italian banks Banco Popolare, Mediobanca and Banca Popolare Milano have all found reverse gear, though in percentage terms the falls are about half those of their Spanish counterparts.

Elsewhere in the banking sector Deutsche Bank said it now controls more than 50% of the shares of rival Deutsche Postbank following the latest totting up of acceptances of its bid for the Bonn-based bank.

Swiss biotechnology company Actelion is under the weather after UBS cut its rating on the stock from “buy” to “neutral”.

Broker downgrades, this time from Morgan Stanley, are also weighing on sportswear manufacturer Puma, flavour and fragrance maker Givaudan and Ray-Ban sunglasses maker Luxottica; all have been downgraded to “underweight”. Oilfield services provider Technip, meanwhile, has been cut by Morgan Stanley to “equal weight” from “overweight”.

The broker is sending some love the way of Sky Deutschland, however, upgrading the stock to “overweight” after the recent slide in the company share price.

Spanish property firm Realia Business is to increase its exposure to the French commercial property market by means of an asset swap deal with French counterpart Societe Fonciere Lyonnaise.

Realia is to transfer 29.99% of its French real estate investment trust (REIT), SIIC de Paris, to Societe Fonciere Lyonnaise in exchange for €287m of property assets. The deal reduces Realia’s stake in the REIT below 60%, enabling it to continue to enjoy French tax benefits from its holding.

CAC 40 - Risers
ST Microelectronics (STM) € 6.93 +1.55%
Accor (AC) € 33.71 +0.28%
Carrefour (CA) € 36.30 +0.19%

CAC 40 - Fallers
BNP Paribas (BNP) € 47.67 -4.32%
Societe Generale (GLE) € 37.33 -3.74%
AXA (CS) € 11.70 -3.58%
Alcatel-Lucent (ALU) € 2.13 -3.06%
Credit Agricole (ACA) € 9.85 -3.03%
Peugeot (UG) € 30.39 -2.88%
Technip (TEC) € 61.14 -2.67%
Veolia Environnement (VIE) € 20.98 -2.49%
Vivendi (VIV) € 19.38 -2.39%
Renault (RNO) € 42.88 -2.37%

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Indian Market Extends Losses

The Indian market extended its recent losses on Friday, after the Central Bureau of Investigation (CBI) said it was probing 21 companies on the bribes-for-loans scandal and market regulator SEBI said it is examining the possibility of insider trading in shares of at least nine companies. Weak Asian and European markets and a lack of directional cues from Wall Street due to the Thanksgiving holiday on Thursday also dampened investor sentiment to some extent.

Meanwhile, a finance ministry statement termed the housing finance racket, involving several officials of public sector banks, as an "isolated" instance of "alleged illegal gratification." The finance minister has directed all state-run banks, financial institutions and insurance companies to look into their exposures to the various companies mentioned in the CBI application filed in the Court and carry out independent evaluation on the asset quality, documentation and compliance of other prudential requirements.

With an intra-day recovery proving elusive, the 30-share BSE Sensex ended down 182 points or 0.94% at 19,137 after falling to a low of 18,955 earlier in the session. The broader Nifty lost 48 points or 0.82% to end at 5,752.

Shares of mid and small companies tumbled on the back of panic selling triggered by margin calls from stock brokers. The BSE mid-cap and small-cap indexes ended down 3.06% and 4.49%, respectively. In the broader market, declining shares outpaced gaining ones by 2508 to 485 shares.

Sector-wise, property stocks bore the brunt of the selling on concerns about a pullback in lending to the realty sector. Ackruti City (down 13.38%), Orbit Corp (down 13.08%), Indiabulls Real Estate (down 11.88%), D B Realty (down 9.99%), Unitech (down 4.76%), and DLF (down 1.71%) were the prominent decliners.

Hindustan Construction plummeted 19% after the environment ministry reportedly asked its subsidiary Lavasa Corp to stop construction of a township project outside Pune.

Airline stocks such as Kingfisher and Jet Airways fell about 7% each after civil aviation minister Praful Patel asked airlines to avoid any kind of predatory pricing. Bank of India rose 2.14% after the state-run lender clarified that its asset quality continues to be good. Piramal Healthcare, which is in the race to acquire Ahmedabad-based Paras Pharmaceuticals, ended up 2.04%.

 Jaiprakash Power Ventures tumbled 4.25% after receiving a CBI notice on the ongoing probe into the multi-crore housing loan scam. Jaiprakash Associates plunged a little over 8%. Alphageo (India) declined 3.54% despite winning a new order worth Rs.12 crore from Essar Oil.

Heavyweight Reliance Industries fell nearly 2% to end near the day's low. TCS rose 2.14%, while Infosys eased 0.76%, as the rupee fell to a 10-week low against the dollar on Friday afternoon, tracking losses in other Asian peers and the local stock market. Wipro, which is reportedly trying hard to reinvigorate itself, ended down 0.55%.

In the banking sector, Union Bank of India, Bank of Baroda, HDFC Bank, Axis Bank, Punjab National Bank and IDBI Bank lost between 0.5% and 5%, while SBI advanced 1.16% and ICICI Bank added 0.68%.

Among metal stocks, Tata Steel, Hindalco, Sterlite, Hindustan Zinc, Sesa Goa and JSW Steel fell by 0.80%-7%. Telecom operator Reliance Communication fell 5.51%, auto maker Tata Motors declined 3.30%, Mahindra & Mahindra fell 3% and mortgage lender HDFC ended down 1.78%.

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Euro Spirals Lower As Portugal, Spain Deny Bailout In The Works

The euro extended its losses Wednesday as officials from Spain and Portugal denied reports that the European Union is pressuring them to work out a bailout.

Greece and Ireland have reluctantly accepted aid, but the EU is reportedly getting desperate to backstop the debt of the Iberian nations.

An article in FT Deutchland citing an unnamed source said majority of euro area countries and the European Central Bank are urging Lisbon to apply for a financial bailout from the European rescue fund.

It is hoped that a deal for Portugal would ease pressure on Spain, where banks are heavily exposed to Portugal. However, a spokesman for Portugal said the report was completely unfounded and that deep budget cut are in place.

Amid popular unrest aimed at derailing austerity measures, Portugal's government said Friday that the streamlined 2011 budget was approved by parliament.

Spanish Prime Minister Jose Luis Rodriguez Zapatero also rejected the notion that rescue was being negotiated for his country.

The prime minister, whose popularity is sagging following the announcement punishing austerity plans, said the government had undertaken strict reforms to trim the public deficit, and hit out at speculators who bet against the country.

Still, the euro fell further against the dollar, hitting a new 2-month low of $1.3199. Its been a brutal three weeks for the euro, which began November at a 10-month peak near $1.43.

The euro was stuck near last week's 2-month low of Y110.30 against the yen.

Against the sterling the euro hit a 2-month low of 0.8419 before improving to 0.8470.

German consumer price inflation rose to the highest level in more than two years, preliminary data from the Federal Statistical Office showed Friday. The consumer price index, or CPI, rose 1.5% year-on-year in November following the 1.3% increase in October.