Daily world financial and forex news

Daily world financial news from Thomson Financial News

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US Stocks at a Glance

U.S. Stocks Steeply Lower On Gloomy Global Data

U.S. stocks opened sharply lower Monday, kicking off December by shaving off some of the strong gains from last week, as economic reports from around the world fueled concerns about a global recession.

Stocks fell further after a report showed the manufacturing sector of the U.S. economy slumped at the fastest pace in 27 years in November.

"The setback for U.S. stocks follows one of the best weeks in 34 years, as the S&P 500 rose 12% on hopes that government bailouts [for Citigroup] and Fed loans, another $800 billion served up, will limit the economic downturn," said Sal Guatieri, senior economist at BMO Capital Markets.

The Dow Jones Industrial Average (DJI) fell 379 points, or 4.3%, to 8,449, with 29 of the blue-chip's average 30 components falling.

Among stocks linked to a dimming outlook for global growth, shares of aluminum giant Alcoa Inc. (AA) slumped 10%, equipment-maker Caterpillar (CAT) fell 9% and global conglomerate General Electric (GE) slumped more than 7%.

Away from the Dow, Ford Motor (F) rose 6.7% after saying it is considering the sale of its Volvo brand. The S&P 500 index (SPX) fell 44 points, or 5%, to 851, while the Nasdaq Composite (RIXF) lost 72 points, or 4.7%, to 1,462.

The Institute for Supply Management said its manufacturing index fell to 36.2% in November from 38.9% in October. It's the lowest since early 1982. Economists were expecting the ISM index to fall to 37%. Readings under 50% indicate most firms reported worsening conditions.

Federal Reserve Chairman Ben Bernanke is speaking on the economic outlook at a Dallas Fed conference, and Treasury Secretary Henry Paulson is due to give an update on the U.S. economy and markets.

Earlier, manufacturing gauges in China, the euro zone and Britain each showed significant drops, with the Chinese and British gauge dropping to record lows. The European Central Bank and the Bank of England are expected to cut interest rates further at their policy meetings on Thursday.

Similar gauges released earlier in China, the euro zone and Britain each showed significant drops, with each of the gauges dropping to a record low.

"Although weaker PMI readings were expected for these economies, the magnitude of the declines was surprising, implying that activity slowed very sharply in the latest month," said Nick Verdi, an economist at Barclays Capital.

Federal Reserve Chairman Ben Bernanke is speaking on the economic outlook at a Dallas Fed conference, and Treasury Secretary Henry Paulson is due to give an update on the U.S. economy and markets.

"The U.S. policy speeches are expected to provide a guideline on the U.S. Treasury/Fed's combined quantitative easing strategy and the outlook for zero policy rates," said Lena Komileva, an economist at Tullett Prebon.

Forex

FOREX-Yen gains; shrinking output raises investor caution

LONDON - The Japanese yen strengthened broadly on Monday as slumping Chinese and European manufacturing activity kept investors on edge and dragged world share prices down.

Yen strength also weighed heavily on currencies of countries where central banks are expected to slash interest rates later this week including the euro, sterling and Australian dollar.

The Bank of Japan, meanwhile, whose key interest rates are a mere 0.3 percent, said it will hold an emergency meeting on Tuesday to discuss changes in the use of corporate debt for collateral banks put up to access central bank funds.

With economies already slowing sharply around the world sensitivity to output figures was high. Manufacturing activity in the euro area, which has already entered recession, hit a record low in November. Economic powerhouse China also saw its manufacturing industry slump in November as new orders, especially from abroad, tumbled.

Resulting risk aversion took global share prices, as measured by MSCI's all country index, down 1 percent on the day, while yen gains against major rival currencies accelerated sharply.

"The data is just so terribly poor that it's going to be difficult for any kind of period of sustained uptrend in confidence," said Derek Halpenny, European Head of Global Currency Research at BTM UFJ in London.

"Until we're through the deterioration in the data then the likelihood is that risk aversion will remain elevated and we'll see renewed interest in lower yielding currencies," he added.

By 1150 GMT, the dollar was down 1.7 percent against the yen at 93.88 yen and the euro was down 1.9 percent versus the Japanese unit at 118.93 yen.

The euro fell 0.2 percent against the dollar to $1.2667, while sterling was off 2.2 percent against the greenback at $1.5045.

Sterling's losses were exacerbated after British figures showing manufacturing activity had shrunk at a record pace.

The Bank of England, the European Central Bank, the Reserve Bank of Australia and the Reserve Bank of New Zealand are all expected to cut rates by at least half a percentage point, diminishing the yield advantage of their currencies over the ultra-low yielding yen.

Analysts expect those four major central banks to cut rates aggressively to counter the threat of deflation and prevent the global financial market crisis from spilling over into further economic weakness.

Yen crosses reflected those expectations, with sterling/yen, Australian dollar/yen and New Zealand dollar/yen all down more than 3 percent on the day.

Analysts expect the RBA to cut its benchmark cash rate by 75 basis points to 4.50 percent on Tuesday. But data on Monday showing Australian inflation slowing much faster than earlier thought and manufacturing activity at record lows in November bolstered the case for a steeper cut in rates.

The RBNZ is expected to lop a full 1.5 percentage points off its key rate to 5 percent, which would match the magnitude of the Bank of England's surprise cut last month.

Economists polled by Reuters expect the BoE to follow that up with a more modest 50 basis point cut to 2.5 percent on Thursday, but futures traders are pricing in a more aggressive 100 basis point reduction.

The ECB is expected to cut by half a percentage point on Thursday to 2.75 percent but the weakness of recent economic and inflation indicators is building the pressure for a deeper cut. The euro zone manufacturing sector, for example, contracted sharply in November, data showed on Monday.

"Polls show economists are expecting the ECB to cut by 50 basis points but marketwise, there would be disappointment if the ECB did 50 basis points," said Steve Barrow, head of currency strategy at Standard Bank in London.

Financial markets in the United States should return to normal liquidity and trading conditions on Monday following last week's Thanksgiving holiday. Investors will be keeping an eye on the November jobs report on Friday. Later on Monday the Institute for Supply Management releases its November manufacturing index.

European News

Banks, commods lead Europe shares lower at midday

LONDON - European shares fell back at midday on Monday after recessionary concerns gripped investors with banks and commodities the biggest losers.

By 1132 GMT, the FTSEurofirst 300 index of top European shares was down 3 percent at 836.23 points. Mike Lenhoff, strategist at Brewin Dolphin said: "It has been a disappointing start to the week with bad news in all the European PMI figures, though hopefully this will mean further interest rate cuts in the UK and Europe."

The Markit Eurozone Purchasing Managers Index (PMI) for the manufacturing sector slumped to 35.6 in November, a low not seen in the survey's 11-year history and well below the 36.2 flash reading and economists' forecasts.

Philip Lawlor, strategist at Nomura, said: "It was a great week last week with the market on average up 10-12 percent. It is not a great deal of surprise to see a bit of profit taking. It is back to the reality of the economic outlook and its impact on corporate earnings. Investors are remaining very defensive."

Banking stocks took the most points off the index, although stocks within the sector were mixed. BNP Paribas, Societe Generale and Credit Agricole slipped 2.7-6.3 percent after traders cited mounting worries over Brussels' green light to the French government's package for the ailing sector.

Energy stocks dropped as the price of crude retreated 4.5 percent after producer cartel OPEC decided to delay a decision on a third supply cut to its next meeting later in December as economic woes squeeze oil demand.

BG Group, BP, Royal Dutch Shell, ENI and Total fell 2-3.4 percent. Miners were in the doldrums. Xstrata slipped 6.5 percent after the group said that it would temporarily suspend a further five ferrochrome furnaces at its joint venture with South Africa's Merafe Resources, raising the cuts in annual production to 906,000 tonnes.

Anglo American, Antofagasta, BHP Billiton and Lonmin were down 3.6-11.4 percent. Steelmakers, Arcelor Mittal, ThyssenKrupp and Salzgitter were 5.1-8.4 percent lower after a profit warning from Finnish sector peer Rautaruukki.

There were few risers, with investors turning to the more defensive sectors such as the pharmaceuticals for safety. SanofiAventis and GlaxoSmithKline were up 0.45-1.5 percent.


Asia at a Glance

December Brings Hope, Confusion; Honda, BHP Fall

Asian stocks ended on a mixed note Monday, as investors weighed evidence the global slowdown is deepening, including data showing China's manufacturing activity contracted by a record amount in the past month, against signs stocks may already have weathered the worst of the bad news.

Honda Motor Co.'s (HMC) shares led Japanese auto makers lower as the nation looks set for its weakest year of domestic auto sales in more than three decades. Honda shares ended 2.9% lower.

Hong Kong stocks posted the biggest gains in the region, led by property stocks, as investors cheered weekend sales data pointing to a strong showing at several big-project releases.

Tokyo investors were skittish after property developer Morimoto Co. filed for liquidation protection with $1.7 billion in debts. Shares of the firm were untraded on the Tokyo Stock Exchange.

Investors seemed to take few cues from the U.S. Friday, where shares rose in a holiday-shortened session. The Dow Jones Industrial Average (DJI) climbed 1.2% higher at 8,829, marking a 17% rise for the week and its best five-day percentage gain since 1932.

Analysts said investors were moving into Hong Kong and China shares to take advantage of the market's tendency to rally in December. In 15 of the 20 years, the Hang Seng index has advanced in the month of December.

"All negative news items are already priced in," said Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong, adding he expects the index could rise 1,000 to 2,000 points in the next four weeks.

Sentiment toward China shares was also helped by a Xinhua report that China's Cabinet Office expects the mainland economy to expand 10% next year. Investors were also heartened by the stronger-than-expected turnout of U.S. shoppers during the weekend in what amounts to the traditional kick-off to the Christmas shopping season.

Among currencies, the U.S. dollar weakened to 95.30 to the yen, down from 95.52 yen late Friday. Among regional indexes, Japan's Nikkei 225 ended 1.4% lower at 8,397.22, the Australian S&P/ASX 200 closed 1.6% down at 3,681.20 and the South Korean Kospi gave up earlier gains, tumbling 1.6% to 1,058.70.

Shanghai's Composite Index firmed 1.3% to 1,894.54, the Singaporean Straits Times Index fell 2.3% at 1,692.44 and the Taiwanese Taiex Index climbed 1.3% at 4,518.44.

Analyst said the protracted political crisis in Thailand, which has seen Bangkok's main international airport closed since Tuesday, now risks choking the economy and deeply scaring the nation's reputation as an idyllic tourist destination.

"The whole image of Thailand was destroyed by this," said fund manager and financial author Marc Faber, speaking on CNBC. "If you booked a holiday to Thailand over Christmas and the New Year and you are not sure about getting in and getting out, you are not going to go, it destroys business."

Faber, who lives in northern Thailand, said he was holed up in Hong Kong awaiting the airport's reopening. Chinese retail stocks were standouts after a Xinhua report that Beijing will launch a nationwide program to subsidize farmers buying electronic appliances. The assistance program will reportedly rebate 13% of the cost of these goods.


Eric Fishwick, head of economic research at CLSA, described the data as "grim" in a research note Monday, adding that it showed the global slowdown now overshadows what has until recently been a mainly domestic-led slowdown in the Chinese economy.

"Export orders will weaken further and we expect further cuts in production and employment. Costs are plummeting but the benefit to margins is being offset by output price cuts as businesses try to protect market share," Fishwick wrote.

Among standouts in Hong Kong's property sector, shares of Sun Hung Kai Properties (SUHJY), the city's biggest developer, added 1.7%


Metals

PRECIOUS-Platinum slides 7 pct, Japan auto data hurts

LONDON - Platinum tumbled 7 percent in Europe on Monday as weak Japanese auto sales data further emphasised poor demand from carmakers, while gold came under pressure from a firmer dollar and falling oil prices.

Spot platinum slipped to a session low of $808.50 an ounce, a one-week low, and was trading at $809.50/829.50 at 1033 GMT, against $871.50 an ounce late on Friday. Its sister metal palladium fell nearly 5 percent to $178/188 from $186.50.

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Falling U.S. car sales were largely priced into the market, but the same trend from elsewhere can push prices further down, traders said. "The market is now reacting to uncertainty about how the Chinese market will fare going forwards," said Tom Kendall, precious metals strategist at Mitsubishi Corporation. "Japanese automakers, who were regarded as best managed and strongest financially, are clearly facing the same problems as all the others."



Traders awaited U.S. car sales data due on Tuesday to give fresh momentum to trade. Gold prices also slipped, pressured by a marginally firmer dollar against the euro and a $2 slide in oil prices, which can dent interest in commodities as an asset class. The dollar strengthened 0.4 percent against the euro. The European Central Bank is widely expected to cut its interest rates later this week.

Oil prices fell below $52 a barrel after OPEC opted to defer a production cut until mid-December at its meeting on Saturday. Spot gold was trading at $796.70/798.30 an ounce, down from $813.00 an ounce late on Friday, while spot silver was at $9.85/9.93 an ounce from $10.26 an ounce.

A spate of U.S. economic data due this week is likely to affect currency markets and gold. "The event risk is really high this week, starting with the US ISM Manufacturing index which is likely to slip further to a fresh 16-year low of 37.5 from 38.9," said Pradeep Unni, a senior analyst at Richcomm Global Services.

"However the prime focus would be on the U.S. non-farm payrolls on Friday which is likely fall negative for the 11th straight month and by the most since September 2001."