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Wednesday, February 25, 2009

ADVFN World Daily Markets Bulletin - Feb 25, 2009

US Stocks at a Glance

Dow Industrials Fall 50 Points; Nasdaq Down 0.9%

US Stocks Decline In Early Trading  U.S. stocks moved lower after the roller-coaster ride of the last two sessions, with the financial sector leading the way down.

The Dow Jones Industrial Average was down roughly 78 points shortly after the opening bell. The S&P 500 slipped 1.2% amid a 3.2% decline in its financial sector, while the Nasdaq Composite Index declined 1.2%.

Federal Reserve Chairman Ben Bernanke told a Senate panel Tuesday that he doesn't believe that nationalization of major U.S banks is needed. Talk about the potential for a government takeover of Citigroup, Bank of America or other ailing lenders had roiled markets recently, and Bernanke's remarks helped push the Dow industrials up 236 points, erasing nearly all of Monday's losses. Bernanke testifies to House lawmakers on Wednesday.

Regulators are expected to begin putting banks through stress tests Wednesday to determine whether they have adequate capital. Shares of many banks gained in early trading. Citigroup, which is reportedly nearing an agreement to convert the U.S. government's holdings of preferred stock in the bank to common stock, was down about 12%. Bank of America was down about 7.2%. Wells Fargo was down 4.1% and U.S. Bancorp was lower by 6.3%.

Beyond the banks, Ambac Financial Group, the bond insurer, gained about 1% after it posted a narrower quarterly loss and said its financial-guarantee losses and provisions surged. Wynn Resorts shares fell 12% after it reported a $159.6 million loss for the fourth quarter amid a "dramatic deceleration" in gambling revenue.

KBR, the engineering and construction company spun off from Halliburton, rose 1.4% after posting a 24% jump in earnings. Dollar Tree gained 11.2% after the discount retailer reported strong results.

The euro was at $1.2784 from $1.2850 late Tuesday, while the dollar was at ¥96.96 from ¥96.80. Gold futures fell to around $965. Oil futures traded back above $40 a barrel ahead of weekly energy inventories. Treasurys prices were narrowly mixed.

Overseas markets were generally stronger Wednesday after Wall Street's gains on Tuesday. The Nikkei 225 climbed 2.7%, with exporters helped by the recent bout of yen weakness. The FTSE 100 rose about 1% in London and Germany's DAX was up 0.5%, though S&P's downgrade of Ukraine's sovereign debt rating led to renewed worry about a deepening financial crisis in Eastern Europe.

Treasurys Little Changed Ahead Of Auction

Treasurys were mixed Wednesday before the government continues its record-sized auctions of U.S. debt. Yields on 10-year notes, which move in the opposite direction as prices, rose 1 basis point to 2.81%. A basis point is 0.01 percentage point

Two-year note yields declined 2 basis points to 1.01%, again testing whether it can stay above 1%. The securities haven't closed above that level since Feb. 9. The Treasury Department will accept bids until 1 p.m. Eastern time for $32 billion in 5-year notes.

On Tuesday, the government saw decent demand for $40 billion in 2-year securities, though weak interest from a class of investors that includes foreign central banks. On Thursday, the government will sell $22 billion in 7-year notes, the first offering of the maturity since 1993.

Traders are also closely watching how U.S. equity markets react to President Obama's address to Congress late Tuesday. At 10 a.m. Eastern, an economic report is expected to show existing-home sales nudged up in January.

Federal Reserve Chairman Ben Bernanke will again be speaking to Congress. With prepared remarks a repeat of Tuesday's, analysts will be more interested in his answers to questions from lawmakers.

Continued signs of economic weakness in various data combined with "cautionary words from Bernanke have confirmed the underlying bullishness that is the primary offset to the estimated $1.5 trillion of net new Treasury issuance" in fiscal 2009, said strategists at RBS Greenwich Capital.

Europe Shares

European Stocks Advance On Banking Gains

European shares advanced on Wednesday, as remarks from Federal Reserve Chairman Ben Bernanke soothed bank-sector-nationalization worries and investors reacted positively to earnings from Deutsche Boerse and Henkel.

Picking up on a sharp rally for U.S. shares on Tuesday, investors pushed the pan-European Dow Jones Stoxx 600 index up 1.4% to 175.29.

Asia stocks also advanced, while U.S. stock futures were muted after the previous session's strong gains.

On a national regional level in Europe, the German DAX 30 index rose 1.6% to 3,958.76, the French CAC-40 index climbed 1.6% to 2,750.74 and the U.K. FTSE 100 index advanced 1.4% to 3,871.23.

Banks rose sharply on Wall Street on Tuesday after Bernanke played down any notion of nationalizing major U.S. banks.

Improved sentiment towards financials spread to Europe on Wednesday, with HSBC Holdings (HBC) shares up 4.9% in London, BNP Paribas shares up 8.9% in Paris and Santander shares up 4.9% in Madrid.

"Efforts are being taken by U.S., U.K. and other authorities to provide insurance against loans, which they hope will encourage increased lending," noted Darren Winder, head of macro and strategy research at Cazenove.

"The difficulty at the moment is that people generally have relatively little confidence in whether these measures will work," he noted. "There is an air of skepticism around, and that is why we are seeing markets move largish amounts on a daily basis."

"I think it will be some considerable time before we know whether the banking system has been stabilized to the point where lending growth has resumed to the real economy and has resulted in rising levels of economic activity," Winder added.

U.S. President Barack Obama attempted to address worries about the future of the U.S. economy on Tuesday when he said that the U.S. will emerge from the recession "stronger than before."

Shares of German consumer-products group Henkel jumped 11% after it said that fourth-quarter net income more than tripled to 863 million euros from 244 million euros a year earlier, boosted by the sale of its Ecolab operation. Henkel said that it expects difficult market conditions to continue through 2009 but expects to outperform its markets in terms of organic growth.

German stock-exchange operator Deutsche Boerse climbed 5.9% after reporting an 18% drop in fourth-quarter net income to 222.4 million euros ($286.1 million). That still was enough to beat market expectations.

Chocolate maker Cadbury (CBY) climbed 2.7%. Its fiscal-year net income declined to 366 million pounds from 407 million pounds a year earlier but came in ahead of analyst forecasts. Sales rose to 5.4 billion pounds from 4.7 billion pounds.

Rhodia shares climbed 11%. The French chemicals specialist reported a fourth-quarter net loss of 28 million euros, broadly in line with analyst forecasts. A year earlier, it reported a profit of 22 million euros. It also unveiled 150 million euros of cost cutting measures.

Shares of Royal Caribbean Cruises climbed 2.4% in Oslo while Carnival shares rose 7.6% in London after Credit Suisse upgraded both cruise operators to outperform from neutral.

World Forex

Dollar, Yen Recover From Sell Off Vs Euro

The dollar and yen are back to recent ranges versus the euro after a sell-off a day earlier following remarks by the Federal Reserve Chairman to Congress.

Chairman Ben Bernanke downplayed the notion of bank nationalization in the U.S. - a fear that has led to both sinking equities markets and risk appetite - and said it would be the course for only the weakest banks. This helped the euro rise as high as $1.29 overnight and Y125.16, its highest level in more than six weeks.

Bernanke has a second day of testimony Wednesday, beginning at 10 a.m. EST, at the same time as January U.S. existing home sales data will be released.

In short-term trading, currency analysts say the euro could advance back to those highs after breaking through key technical trading levels. In addition, after the dollar advanced versus the yen to its highest level since late November, analysts say it could surpass the session high of Y97.35 to reach Y100.0.

Wednesday morning in New York, the euro was at $1.2810 from $1.2850 late Tuesday, while the dollar was at Y96.68 from Y96.80, according to EBS. The euro was at Y123.86 from Y124.38. The U.K. pound was at $1.4399 from $1.4485, and the dollar was at CHF1.1610 from CHF1.1603 Tuesday.

While the European currencies rallied with U.S. stocks Tuesday, underlying economic fears are keeping the euro and U.K. pound confined.

Data released overnight confirmed economic contraction in Germany and the U.K.

Europe's largest economy experienced its worst quarter in the three months to Dec. 31 since Germany reunified in 1990. Germany's fourth-quarter gross domestic product contracted by 2.1% in adjusted terms on the quarter, according to a final reading from the federal statistics office. It was the third quarterly contraction in a row and was mainly due to a significant 2% decline in net exports, the office said. GDP shrank 1.7%, when compared with the fourth quarter of 2007.

Meanwhile, the U.K.'s Office for National Statistics reported that fourth-quarter gross domestic product contracted 1.5% from the third quarter and fell 1.9% from the year earlier period.

The cost of insuring Germany's debt hit a new high of 93 basis points Tuesday. The costs have been hitting highs in weaker euro-zone nations as well.

This, combined with doubts over the feasibility of stronger euro-zone nations being able to help struggling ones, led Chris Turner, head of foreign exchange strategy at ING Financial Markets in London, to call for the euro versus dollar to tread lower.

Elsewhere, Standard & Poor's Ratings Services lowered its long- and short-term foreign currency sovereign credit ratings on Ukraine Wednesday to 'CCC+/C' from 'B/B', and its local currency ratings to 'B-/C' from 'B+/B'. The outlook is negative.

Canada Morning
After gaining substantial ground on Tuesday, the Canadian dollar has lost direction and remains mired in recent trading ranges so far Wednesday.

"I'd say that it's a little bit directionless. People are on both sides of the fence," said C.J Gavsie, director of corporate and institutional foreign exchange sales at Bank of Montreal in Toronto.

The U.S. dollar has been trading in a broad range between the mid C$1.2400s and the mid C$1.2500s, although a break lower seems likely at some point, he said.

General U.S. dollar strength enabled the greenback to advance against the Canadian unit in early North American trading before it receded modestly, he said.

Gavsie said commodities are not providing much direction for the Canadian dollar, with the currency wobbling despite gains in crude oil futures. Wednesday morning, the U.S. dollar was at C$1.2457 from C$1.2408 late Tuesday.


Spot Gold Down On Profit-taking, Eyes Equities

Spot gold traded to a six-day low Wednesday in European hours due to continued profit-taking, with equities in Asia and Europe rising following gains in the U.S. overnight on remarks from Federal Reserve Chairman Ben Bernanke.

Bernanke tried to assuage market fears that he doesn't believe more major banks are on the brink of collapse and need to be nationalized. And his comments about the rate of inflation - that it's likely to be lower than normal given the decline in commodity prices and spare productive capacity in the economy - were also not supportive of gold prices, said HSBC analyst James Steel.

At 1027 GMT spot gold was trading at $952.60 a troy ounce, down 1% from Tuesday's close. Spot silver was at $13.68/oz, down 0.6%. Spot platinum was at $1,034/oz, down 0.3%. Spot palladium was at $196/oz, down 1%.

"Gold is in a correction and consolidation mode," said Afshin Nabavi, head of trading and physical sales at MKS Finance. Along with higher equities, inflows into exchange traded funds stalled in recent days. That allowed investors to take some profits, but dips will be bought, Nabavi said.

Gold needs to hold above support at $950/oz to prevent further declines, Nabavi said. If U.S. stocks resume declining then he expects gold prices to resume rising.

Prices will recover in the coming days, said Standard Bank analyst Walter de Wet. A rise in risk appetite and higher equities is weighing on precious metals right now, he said, but data continues to show risks to the real economy which will keep investors interested in gold.

Spot platinum is trading along with gold prices and as long as important support at $1,000 a troy ounce holds then the metal will continue to get trading direction cues from gold, MKS' Nabavi said.

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