US & World Daily Markets Financial Briefing 31-10-2008

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US STOCKS-Financial shares lead Wall St rally

NEW YORK - The Dow and the S&P 500 climbed more than 1 percent on Friday, led by financial shares as investors picked up bargains prompted by further signs of thawing in the credit markets.

An S&P index of financial stocks rose 2.8 percent.

The Dow Jones industrial average rose 106.49 points, or 1.16 percent, to 9,287.18, near its session high of 9,296.26. The Standard & Poor's 500 Index gained 9.80 points, or 1.03 percent, to 963.89. The Nasdaq Composite Index was up 13.12 points, or 0.77 percent, at 1,711.64.

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FOREX-Dollar climbs, yen gains, risk aversion stays high

LONDON - The dollar rose against most major currencies on Friday as global share prices bumped lower on fears about a possible recession, keeping investors risk averse which also boosted the yen.     
   
A sharp deterioration in the global economy is keeping expectations high that both the European Central Bank and the Bank of England will cut rates next week by 50 basis points.
   
Figures on Friday showing a fall in euro zone inflation boosted the argument for a rate cut by the ECB, which until recently had been wary of loosening policy because of global price pressures.
   
At 1128 GMT, the euro was down one percent at $1.2769, while it fell 1.9 percent against the yen to 124.95 yen. The dollar was down 0.8 percent at 97.81 yen.
   
Despite the dollar's losses against the yen, analysts said it would be supported, especially against the euro, by funds who need the U.S. currency for month-end window dressing purposes. "Volatility is the watchword today," said Adam Cole, global head of currency strategy at RBS Capital Markets in London. "Large flows for hedging and rebalancing at the month end when the market is thin will likely prompt high volatility."
   
Other market participants said that the euro's sharp drop following a climb to around $1.33 on Thursday suggested that very few traders were comfortable taking outright short positions in the dollar.
  
Sterling was down around 1.3 percent against the dollar, but off session lows on news that UK banking giant Barclays PLC secured $12 billion in new capital.

Currencies have taken a roller-coaster ride in October as investors were forced to liquidate assets, prompting flows back into the dollar and yen and drastically cranking up volatility.
  
The yen struck a 13-year peak against the dollar and a six-year peak against the euro this month, jumping roughly 15 percent on a trade-weighted basis. Euro/dollar was down nearly 10 percent for October, on track to a record monthly decline.
   
The dollar/yen is down 8.5 pct on the month so far, en route to clock its biggest loss in 10 years, and sterling/dollar is nearly nine percent weaker from the start of the month, the biggest loss since October 1992. 
   

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Europe shares fall; Barclays, HSBC lead banks lower

FRANKFURT- European stocks fell in midmorning trade on Friday, snapping a three-day rally, as HSBC  and Barclays led banks lower, while BT Group dived after warning it would miss earnings forecasts.
     
At 1122 GMT, the FTSEurofirst 300 index of leading European companies was down 0.9 percent at 895.82 points after gaining 0.7 percent in the previous session. The index is down nearly 16 percent in October, on course for its worst month on record.
      
Barclays slumped 9.1 percent after the British bank said it is raising $12.1 billion from investors from Qatar, Abu Dhabi and elsewhere to allow it to avoid taking UK government rescue cash, while HSBC sank 7.3 percent after Goldman Sachs downgraded the stock to "sell" from "neutral".
      
"The road ahead still looks long and steep. A relatively deep global recession could require further capital raising, with banks on this occasion going into a downturn in relatively poor shape," said Keith Bowman, equity analyst at Hargreaves Lansdown in London.
      
"For now, market consensus opinion denotes a weak hold."
              
The telecoms sector was another standout loser, led by Britain's BT, which plunged 24 percent after the company said it would miss earnings forecasts for its second quarter due to a poor performance at its Global Services unit.
      
Within the sector, Cable & Wireless slipped 2.8 percent and France Telecom lost 2.6 percent. Weaker crude prices hurt the oil and gas sector, with Total easing 0.9 percent and Royal Dutch Shell  dipping 0.6 percent.
      
Auto shares were once again propped up by Volkswagen , which bucked the downward trend, adding 7.6 percent. Renault, however, fell 5 percent, making it the biggest loser in the European autos sector, after its 44 percent subsidiary Nissan Motor Co said it was undecided on its dividend payout after a near 48 pct fall in first-half operating profit.
      
Drugmakers were in demand for their defensive quality, with GlaxoSmithKline adding 2.9 percent, Roche up 3.7 percent and Novartis putting on 1.1 percent.  Also on the upside, German chemicals group BASF advanced 4.9 percent.
      
The FTSEurofirst 300 has fallen more than 40 percent in 2008, battered by the global credit crisis and the resulting economic slowdown.
     
Across Europe, Britain's FTSE 100 dropped 1.8 percent, France's CAC-40 lost 1.9 percent and Germany's DAX was down 0.2 percent.
   
Investors will keep an eye on a slew of U.S. economic data later in the day, including the Reuters/University of Michigan consumer sentiment survey, a key gauge of consumer inflation and the Chicago PMI survey which tracks Midwest business activity.

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Asian Market Summary

The Nikkei average slid 5 percent on Friday, capping its worst month ever, as investors dumped stocks at the last minute on caution before a three-day weekend, with little impact felt from a rate cut by
the Bank of Japan.
   
The benchmark ended the month of October down 24 percent, its biggest monthly fall in its 58-year history as fears over a global recession battered investor willingness to take on riskier assets.
   
Market players also said short-term profit taking was inevitable after the Nikkei gained nearly 30 percent in the three-day rally to Thursday.  Automakers skidded after downward revisions including one from Mazda Motor Corp.
   
"Investors buying futures seem to have let go of stocks just minutes before the close because this is before a big holiday and we have no idea what could happen on Monday," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.
   
Japanese markets will be closed on Monday for a holiday. On a long weekend in September, Lehman Brothers collapsed.
  
The Bank of Japan trimmed its key interest rate to 0.3 percent from adecade-high 0.5 percent on Friday, though the cut was by a split vote and was smaller than the market had expected. The move came under government pressure to join the global response to the worst financial crisis in 80 years.
   
China, Hong Kong and Taiwan also cut rates this week, with the European Central Bank and Australia seen following suit next week, in the midst of a sharp deterioration in major economies.
   
In relatively active trade, the benchmark Nikkei lost 452.78 points to close at the day's low of 8,576.98.
 The broader Topix shed 3.6 percent to 867.12.

The benchmark Shanghai Composite Index closed down 34.82 points or 1.97 pct at 1,728.79 after gaining 2.55 pct yesterday in response to rate cuts by the US Federal Reserve and the Chinese central bank.
  
The index ended the week down 6.02 pct, extending the decline to 24.63 pct this month and 67 pct for the first 10 months.
   
Turnover fell to 25.16 bln yuan from 35.41 bln yesterday.

The benchmark S&P/ASX 200 index closed 16.9 points higher at 4,018, based on the latest available data. It had fallen to as low as 3,938.2 earlier in the session. Trade volume was about 1.04 billion shares, down from 1.063 billion on Thursday.
   
The index has fallen some 37 percent so far this year and almost exactly a year ago, on Nov 1, 2007, it reached its lifetime high of 6,851.5. "You look at some of the stocks that moved up in that last bit, they are the stocks that have been discounted pretty heavily in recent days such as mining services companies," said David Spry, research manager at F.W. Holst.
   
New Zealand's benchmark NZX-50 index rose 2.1 percent to 2,820.86. Analysts also said that some investors may have seen a recent fall in big miners BHP Billiton Ltd and Rio Tinto Ltd  as overdone, also helping the index.

The Hang Seng index closed down 361.18 points or 2.52 pct at 13,968.67, off a low of 13,517.42 and high of 14,122.78. Turnover was 58.48 bln hkd.

For the week, the index is up 1,350 points or 10.7 pct, but for the month of October it has lost 4,047 points or 22.4 pct in October.
 
The benchmark index of the Bombay Stock Exchange (BSE), the Sensex, closed 743.55 points or 8.22 percent higher at 9,788.06. The Sensex has lost about 24 percent of its value in the month of October, but recovered 12.49 percent in the last week of the month.
   
The broad-based S&P CNX Nifty of the National Stock Exchange ended 188.55 points or 6.99 percent higher at 2,885.60.

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Gold sinks on strong dollar, recession woes

LONDON - Gold prices drifted lower on Friday and headed for their biggest monthly drop in more than 20 years, as a strong dollar and recession fears triggered a sell-off, traders and analysts said.
   
Macroeconomic data on Thursday that showed the U.S. economy had shrunk 0.3 percent, the sharpest fall in seven years, escalated recession worries and knocked down all commodities, including metals and oil.
   
Platinum fell more than 5 percent as slowing economies around the globe and the widespread credit crisis caused the largest auto industry companies to slash full-year profit targets, warn of job losses and push for speedy government handouts.
   
Gold was at $732.50 an ounce by 1240 GMT, having trimmed losses after hitting $720.70 an ounce, compared to $735.50 an ounce late on Thursday in New York.  "Gold's moves today are mainly currency driven," said Simon Weeks, director of precious metals at the Bank of Nova Scotia. "At the month-end flows are in favor of the dollar."
  
The dollar was firmer against most major currencies on expectations of large dollar demand for the month-end. Gold tends to move in the opposite direction of the dollar as a strong U.S. currency makes bullion more expensive for local currency holders.
   
Recession fears added to the bearish sentiment.  U.S. data released on Friday showed consumers in that country cut their monthly spending for the first time in two years during September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.
   
"In times of recession, the most likely scenario for gold is it goes down a lot, especially if it is trading at historically high levels," said Jesper Dannesboe, senior commodity strategist at Societe Generale.
   
"Because the fears of inflation will be replaced by fears of disinflation and that is a killer for gold ... I think gold is going below $600 in this cycle."
   
The metal has lost as much as 21 percent of its value this month alone, and is down 12 percent this year, well below the recod high of $1,030.80 struck in March.
   
It hit a 13-month low of $680.80 last week after investors sold bullion to pay for margin calls. A recovery in stock markets and firmer oil spurred a rebound in gold this week but technical selling emerged after it failed to sustain Thursday's high.
  
Oil slipped for a second day, dropping more than 3 percent towards $64 a barrel and is set for its biggest ever monthly loss as weak U.S. economic data rekindled demand worries, which, in theory, reduces gold's appeal as a hedge against inflation.
   
"Investors are reluctant to buy too much, in case anything happens. We've seen a little bit of physical selling around $770," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, referring to this week's high.
   
Platinum was trading at $792.00 ounce, down $25 from New York's notional close. It has lost more than 60 percent of its value since hitting a lifetime high of $2,290 in March, mainly due to worries about falling demand for autocatalysts.
   
As the strong yen forced Japanese carmakers Mazda and Mitsubishi to slash full-year targets, struggling U.S. automakers were looking to obtain billions from the U.S. government to help them to survive. More than 60 percent of global platinum goes to autocatalysts to clean exhaust fumes.
   
New York gold futures fell $6.1 an ounce to $732.4.  Palladium was at $188.00/198.00 from $197.00 while spot silver was at $9.45/9.55 compared to Thursday's $9.66 late in New York.

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