US Stocks at a Glance
Wall Street rises on news of Citi stake talks
U.S. stocks rose on Monday on reports that Washington could end up with a big stake in Citigroup's common stock as the surest sign yet that it is ready to avert further paralysis of the financial system.
A report in the Wall Street Journal said the U.S. government may end up holding as much as 40 percent of Citigroup's common stock.
The Dow Jones industrial average rose 57.43 points, or 0.78 percent, to 7,423.10. The Standard & Poor's 500 Index gained 6.81 points, or 0.88 percent, to 776.86. The Nasdaq Composite Index was up 6.24 points, or 0.43 percent, at 1,447.47.
Treasurys Prices Drop Ahead Of Still More Supply
NEW YORK - Treasurys prices were lower early Monday ahead of a session free of major data and another week of hefty supply.
Uncertainty over the fate of U.S. banking giant Citigroup leaves markets in a state of anticipation. The weekend press reported the bank is negotiating for the government to increase its stake in the group up to as much as 40%, converting its preferred shares to common stock. While the markets appear warmed by such speculation, they're still wary of hints of more radical government intervention.
U.S. stock futures were buoyed early Monday by the Citigroup talk, and by reports of a memo to employees from Bank of America chief executive Ken Lewis that there was "no reason" the bank should be considered for nationalization.
Nationalization nevertheless remains a hot topic ahead of Treasury Secretary Timothy Geithner's next presentation on the government's plans to assist the banking sector, expected midweek.
The biggest weight on the Treasurys market for the time being is unchanged from the theme of previous weeks - it's all about supply. Monday brings another sale of bills, and a further $94 billion of short- to medium-term notes in the following days. That includes $40 billion of two-years, $32 billion of fives and $22 billion of new seven-year Treasurys.
"It's the reintroduction of the 7-year that we expect to be the largest risk for this series of auctions," noted RBS Greenwich strategist David Ader. "The additional benchmark will test the recent ease of takedowns," he wrote, adding that there hasn't been a seven-year auction since 1993.
Data Monday consists only of the manufacturing survey for the Dallas Fed district. And the only Fedspeak in business hours is from the Atlanta branch's chief, Dennis Lockhart. He speaks on the economy at 12:40 pm EST.
Around 9:10 a.m. EST (1410 GMT), the two-year note was down 4/32 at 99 24/32 yielding 1%, and the 10-year was 20/32 lower at 99 6/32 for 2.84%. The five-year was down 15/32 for a 1.90% yield, and the 30-year was 30/32 lower yielding 3.62%.
Forex
Dollar Volatile Vs Euro With Market Uncertain
The dollar is swinging between losses and gains versus the euro Monday morning inside a tight range, taking cues from global equities markets.
Traders are also focused on reports that Citigroup is in talks with federal officials to potentially expand taxpayer ownership of the struggling bank.
Strategists are uncertain how this could affect the foreign exchange market, as it is unclear how a bank nationalization could occur.
Monday morning in New York, the euro was at $1.2822 from $1.2838 late Friday, while the dollar was at Y94.64 from Y93.05, according to EBS. The euro was at Y121.30 from Y119.46. The U.K. pound was at $1.4608 from $1.4452, and the dollar was at CHF1.1631 from CHF1.1526 Friday.
The dollar eked a clearer rebound versus the yen into the New York session after overnight losses. According to analysts at Barclays Capital, the dollar is overvalued by close to 6% against the yen, an "extreme" level.
"[We] expect dollar versus yen to fall from current levels especially as Japanese exporters are likely to increase hedges, and Japanese investors repatriate assets as they approach fiscal year-end," they said.
Meanwhile, the U.K. pound is up against the dollar after U.K. financial companies performed well on equities markets overnight on news that Royal Bank of Scotland Group PLC (RBS) is planning to place about 25% of assets into a non-core unit to prepare for disposal.
Overnight, the euro had extended last week's rally versus the dollar to nearly a two-week high of $1.2992. European Union Economic and Monetary Affairs Commissioner Joaquin Almunia said earlier that the E.U. is ready to offer support to its weaker economies as the global financial crisis deepens, although none currently need it.
"The financial instrument is there," Almunia said, pointing out that the E.U. has already offered assistance, jointly with the International Monetary Fund, to Hungary and Latvia.
The euro had rallied at the tail end of last week on the possibility of such an arrangement.
However, at a weekend summit, euro zone leaders did not promise such support. Instead, leaders said that the resources of the International Monetary Fund must be doubled. The IMF has currently $250 billion in financial resources and already used some $50 billion to bailout hard-hit countries. It aims to double the level to $500 billion.
The European leaders of the Group of 20 Sunday agreed that all financial markets, products and participants including hedge funds must be regulated, that banks should buffer their resources in good times, and that protectionism will not be part of the solution to the current slowdown. Leaders pledged to revive World Trade Organization negotiations to lower custom rights.
They also addressed the issue of tax havens, stating an intent to "devise sanctions to safeguard ourselves better against dangers emanating from uncooperative jurisdictions, including tax havens."
Analysts say this focus, which zeroes in on Switzerland in particular, could pressure the Swiss franc. Last week, the dollar gained as high as CHF1.1884 on related news.
"Against the dollar, we expect the Swiss franc to slip to the 1.20-1.25 range over the next few months, and we could see losses against other currencies as well," said Steven Barrow, head of G10 strategy at Standard Bank.
Separately, in an interview with Dow Jones, a key member of the European Central Bank governing council said the ECB is studying unconventional policy tools to ease financial strains, but isn't in a rush to introduce them because of more scope to lower interest rates.
Athanasios Orphanides said that compared with the U.S. Federal Reserve and the Bank of England, the ECB still has room to lower interest rates to stimulate activity. "It is important to understand and communicate that the ECB can and will pursue the appropriate action to attain its primary objective, namely price stability in the euro area," Orphanides said in his office at the Cypriot central bank.
"This may necessitate the use of unconventional measures. But with the ECB's policy rate at 2%, we are not yet close to the zero bound of interest rates," he said. "There is still room to maneuver with conventional policy action."
Canada Morning
The Canadian dollar is little changed after recovering from weakness in morning trading Monday after Statistics Canada reported that retail sales declined 5.4% in December, the biggest monthly loss in more than 15 years and significantly weaker than the expected decline.
A major slump in the auto industry led widespread declines across all sectors, Statistics Canada said. The U.S. dollar pushed to a session high at C$1.2536 after the data, according to EBS, before surrendering some of its gains.
The U.S. dollar was recently at C$1.2496 from C$1.2492 late Friday. A report from BMO Capital Markets said that the U.S./Canadian dollar pair remains well contained within recent ranges, with the interim risk towards a lower U.S. dollar against its Canadian counterpart.
"Overall, USD/CAD is going to need to take out either the 1.2000 or 1.2750 areas to get participants 'excited'," the BMO report said.
Europe Shares
European Stocks Led Higher By Banking Sector
A turnaround in the banking sector helped Europe stocks bounce off the worst close in nearly six years, after reports that Citigroup wouldn't be fully nationalized and that Royal Bank of Scotland would break itself in half.
The gains also came as European leaders called for doubling the International Monetary Fund's war chest to $500 billion to assist Central and Eastern European nations, as well as for increased regulation of hedge funds and rating agencies.
The pan-European Dow Jones Stoxx 600 climbed 0.5% to 177.85, as the banking sector took back some sharp losses made last week when nationalization fears hit the sector.
U.S. stock futures advanced after a report in the Wall Street Journal that Citigroup was in talks with the U.S. government for an increased stake but that the government would stop short of fully nationalizing the lender.
Closer to home, Royal Bank of Scotland (RBS) jumped 15%.
The lender plans to split in two, slash costs by more than 1 billion pounds ($1.46 billion) and potentially cut up to 20,000 jobs, as nationalized U.K. lender Northern Rock prepares to reverse course and revive its mortgage lending.
And French lender Natixis rose 10.2% on a report of a possible 1.5-billion-euro fund from its soon-to-be-merged parents, Groupe Banque Populaire and Groupe Caisse d'Epargne.
"In our opinion, the current developments show the commitment of countries to support their banks," noted strategists at LBBW.
The German DAX 30 added 0.9% to 4,049.91 and the French CAC 40 rose 0.8% to 2,773.95. The U.K. FTSE 100 traded up 0.2% to 3,895.31, under performing rivals, as oil producers weighed.
Royal Dutch Shell shares fell 1% and BP (BP) shares declined 0.7%. Barclays Capital said that BP and Royal Dutch Shell are its key under weights in the large-cap European oil sector .It started the sector at negative after 30% out performance over the last twelve months.
"Equity markets are pricing an extended downturn for most sectors but not, in our view, for the large-cap oils," the broker said. "Facing the largest-ever fall in oil price, the European integrated oil sector is trading near an all-time high versus the market on 2009 earnings forecasts," it added.
Still, the broker was more positive on Total , up 1.5%, Eni , up 1.4%, and Repsol , up 1.4%., starting these companies at overweight.
It said Eni and Total have more defensive earnings and cash flows and are less expensive than the integrated group. Repsol has higher financial risk but less operational leverage to oil price weakness, the broker noted.
Elsewhere, ING Group (INGA) climbed 3.1%. The firm named a new chief financial officer, HSBC's Patrick Flynn. Italy's Unicredit was another standout, up 7%, after reassuring on 2008 profit trends. Additionally, Swiss Life Holding shares climbed another 8.2%.
UBS upgraded the insurance firm to neutral from sell, noting the firm's improved solvency ratio which it said relieved capital concerns. Citigroup upgraded the stock to buy from hold, saying the statement goes a long way to arguing that it can do without a dilutive capital increase.
Of the losers, French construction firm Saint-Gobain shares extended Friday's losses with an 8.6% drop. Last week, it announced that it intends to raise capital from its shareholders.
Asia Markets
Nikkei down on credit fear but helped by Citi news
Japan's Nikkei average fell 0.5 percent on Monday, pushed lower by credit fears and worries about U.S. bank nationalisation, though a report that the U.S. government may raise its stake in Citigroup pared losses on reassurance the banking giant will be supported. Closer to home, the failure of SFCG, a high-interest lender to smaller companies, underscored worries about tightening credit hitting businesses throughout the Japanese economy and sent shares in rival firms such as Takefuji Corp tumbling.
Falling global demand hit exporters such as Sony Corp, though a sense that some exporters have been oversold bolstered others.
The Wall Street Journal said the U.S. government may end up with as much as 40 percent of Citigroup's common stock, though Citigroup executives are hoping the talks will result in a stake closer to 25 percent.
Market players said the impact of the Citi news, which helped the Nikkei turn briefly positive and also boosted U.S. stock futures, was likely to be limited at best. "Though Wall Street may well start higher today, the fact remains that this step isn't a comprehensive move but only an attempt to deal with one specific case," said Hideyuki Ishiguro, a supervisor in the investment strategy department of Okasan Securities.
"At least they're working to prevent further bank failures, unlike last year."
There was also talk of buying by public pension funds, which Ishiguro said may have been snapping up blue-chip exporters. But other market players said any pension fund buying was likely to be more along the lines of routine portfolio balancing as the end of the business year approaches.
The benchmark Nikkei .N225, which at one point fell as low as 7,209.43, ended down 40.22 points at 7,376.16, its lowest close since Oct. 27. The broader Topix fell 0.6 percent to 735.28, its lowest close since Dec. 28, 1983, hitting a 25-year low for the second day in a row.
Others said the market was running out of steam without fresh trading factors. "The environment's bad and results are bad, there's no reason to push the Nikkei up further," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"But the bad news about the U.S. banks isn't new so there's also no real pressure to sell -- unless there's some new event."
Consumer finance firms plunged after SFCG filed for liquidation protection with 338 billion yen ($3.6 billion) in debt on bad real estate-backed loans and tightening credit.
SFCG, which had borrowed heavily from foreign banks including Lehman Brothers, has also been slammed by tighter interest rate regulations in the consumer lender industry, forcing it to repay previous interest that was deemed too high.
Takefuji tumbled 15.9 percent to 393 yen and Aiful Corp plunged 16 percent to 107 yen. Bank shares were off earlier lows, with No.3 bank Sumitomo Mitsui Financial Group even turning positive to gain 1.5 percent, while top lender Mitsubishi UFJ Financial Group pared its losses to 0.5 percent at 427 yen.
Mizuho Financial Group fared worst, falling 1.1 percent to 186 yen after news that the bank, Japan's second-largest, will issue $850 million in preferred securities as it scrambles to replenish capital erased by a sliding stock market and economy.
The securities, which are not convertible to common stock and are aimed at overseas investors, will pay a hefty annual dividend of almost 15 percent. But concern the bank may be paying too much helped send down its shares, under performing a 0.6 percent drop in Tokyo's index of bank stocks.
Sumitomo Metal Mining surged 6.5 percent to 1,090 after the company, Japan's top nickel and second-largest copper producer and an aggressive investor in overseas resources, said it plans to take a stake in at least one copper mine in the year starting in April.
Exporters were mixed, with Canon Inc gaining 2.8 percent to 2,360 yen and Hitachi Ltd up 1.7 percent at 245 yen, while Sony slipped 2.5 percent to 1,549 yen and Panasonic Corp down 2.6 percent to 1,044 yen. Trade was active on the Tokyo exchange's first section, with 2.1 billion shares changing hands, compared with last week's daily average of 1.8 billion. Declining stocks outnumbered advancing ones by 1,003 to 599.
Metals
PRECIOUS METALS - Gold up on risk aversion, profit-taking caps gains
Gold climbed in Europe on Friday as risk aversion fuelled buying, but profit-taking capped the precious metal below the last session's seven-month high.
Spot gold rose to $980.15/981.75 an ounce at 1033 GMT from $973.75 late in New York on Thursday. Earlier that session it struck a high of $985.95, its firmest level since July 15, but failed to maintain its upward momentum. "In the short-term there may be an attempt to lock in some profits," said Saxo Bank senior manager Ole Hansen. "It is not every week you have a commodity rising 6 percent."
He said the deteriorating macroeconomic picture and inflows into exchange-traded funds were currently the main influences on the gold price, now that the metal's traditionally close relationship with the dollar had broken down.
More investment flowed into precious metals-backed ETFs on Thursday, with figures released earlier showing both the largest gold ETF and the biggest silver-backed fund climbing to record levels.
New York's SPDR Gold Trust GLD said its holdings rose nearly 5 tonnes to a record 1,028.98 tonnes on Thursday, while the iShares Silver Trust's silver holdings climbed 18.4 tonnes to an all-time high of 7,892 tonnes.
Investors fear the U.S. stimulus package signed off this week may not be enough to stimulate the economy and shore up the ailing financial system, analysts said.
"Gold investors hear 'trillions and trillions' and 'bailout after bailout' and look at gold as the only asset good for capital preservation," said MF Global analyst Tom Pawlicki in a note. "This should keep gold buoyant in the near-term as investors flock to both futures and ETFs."
Equity markets tumbled on Friday, with world stocks dropping to their weakest since November and eyeing six-year lows. The U.S. Dow index hit a six-year low on Thursday. Falling stocks boost the appeal of safe-haven assets like gold.
The precious metal's usual external drivers, oil and dollar, exerted little influence. Gold traditionally moves in the opposite direction to the U.S. currency, as it can be used as a hedge against dollar weakness, and in line with oil.
The dollar climbed on Friday, along with the yen, as global economic woes, falling equity markets and worries about the prospect of a deepening recession in eastern Europe sparked buying of safer assets.
Meanwhile oil prices, which often pull gold in their wake, weakened as fears over the weakening global economy depressed the demand outlook.
Among other precious metals, spot silver climbed to $14.18/14.24 an ounce from $13.01. Spot platinum edged up to $1,082.50/1,087.50 an ounce from $1,066.50, while spot palladium was little changed at $214/222 an ounce from $213.50.
Anglo American, whose Anglo Platinum unit is the world's largest platinum producer, saw its shares tumble more than 10 percent after it scrapped its final dividend and said it will cut 19,000 jobs. The company has sliced its 2009 platinum output forecast by 300,000 ounces, chief executive Cynthia Carroll said.
Elsewhere, Standard Bank analyst Walter de Wet noted Swiss import/export data shows a jump in platinum exports in January. "After being a net importer of close to 3,150 kilograms of platinum in December, 8,764 kilograms of the metal left Switzerland in January," he said. "The main destination was Asia."
Switzerland is the hub of physical platinum trade and its trade flows are indicative of demand for the metal, he said.
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