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Tuesday, March 3, 2009

ADVFN World Daily Markets Bulletin - Mar 3, 2009

US Stocks at a Glance

US Stocks Open Modestly Higher

Stocks rose modestly on Tuesday after tumbling to their worst levels in more than a decade.

The Dow Jones Industrial Average was recently higher by about 60 points at 6823, helped by sharp gains in its banking components and a 5.3% jump in shares of Alcoa. The S&P 500 gained 1.2% amid an across-the-board climb for all its sectors, with energy and basic materials recording gains of around 2%. The Nasdaq Composite Index rose 1.1%.

Stocks were routed world-wide on Monday after American International Group reported the worst-ever quarterly loss in U.S. corporate history and after HSBC Holdings said it would issue nearly $18 billion of discounted stock. The Dow Jones Industrial Average, closing at its worst levels since April 1997, dropped 299 points and the S&P 500 fell 34 points to its worst finish since 1996.

Strategists at Deutsche Bank say they now think the market is looking cheap. "We can finally make a case for equities being "cheap" for not only the first time in this crisis but for the first time in at least 14 years," they said. But, they added, that doesn't mean a rebound is in store. "Given the magnitude of this crisis we may have to eventually see very cheap levels before we bottom. So cheap is helpful but not a reason to suggest an imminent sustainable bounce."

Investors showed a modestly stronger appetite for risk. The dollar rose against the yen but declined against the euro on Tuesday. Gold futures fell about $15 an ounce, while crude-oil futures, which fell more than 10% Monday, climbed. Treasury prices declined.

Markets have been focused on Washington's efforts to halt the economic and financial crisis, with many traders saying the Obama administration's plans so far have been vague. The Wall Street Journal reported that the administration is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at its heart.

Also Tuesday, the Treasury Department and Federal Reserve launched a highly anticipated lending facility aimed at generating up to $1 trillion in consumer and small business loans.

The Term Asset-Backed Securities Loan Facility, referred to as the TALF, is scheduled to begin disbursing funds March 25. It will make loans to purchasers of AAA-rated securities backed by new auto, credit card, student and Small Business Administration guaranteed loans.

Financial stocks, which have led the market downward, were modestly higher. Citigroup gained 4.2% and Bank of America advanced 5.2%.

Looking ahead Tuesday, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner will testify on the budget to separate Senate and House committees. Data on pending home sales for January will be released. Also, automakers will report monthly sales.

Edmunds.com forecasts sales declined 41.4% industry-wide last month. Most Wall Street analysts believe the seasonally adjusted annual rate of sales to have fallen to the low nine-million range, down from 9.6 million last month, which marked a 26-year low. Sales for General Motors, Ford Motor and Chrysler all are seen dropping by over 40%.

Overseas, Asia stocks fell but closed off their worst levels, with the Nikkei 225 down 0.7%. Europe stocks initially rose but quickly soured, with the FTSE 100 recently falling 1% in London.

Forex

Euro Higher Vs Dollar After RBA Holds Rates

The euro and U.K. pound are higher versus the dollar with a slight bump in risk appetite after the Reserve Bank of Australia kept interest rates on hold.

The Reserve Bank of Australia left its cash rate target unchanged Tuesday, signaling its growing satisfaction that it has policy settings right and the economy is well positioned to ride out the global economic storm.

The Australian dollar rallied as a result, also supported by better than expected retail sales and current account data, feeding into a broader boost for risk-sensitive currencies, such as the euro and pound.

RBA Governor Glenn Stevens also noted that Australia's economy hasn't weakened as much as others.

Many currency analysts are writing research notes suggesting to bet on the Australian dollar, particularly versus the New Zealand dollar.

Tuesday morning in New York, the euro was at $1.2651 from $1.2578 late Monday, and the dollar was at Y98.07 from Y97.35, according to EBS. The euro was at Y124.07 from Y122.47. The U.K. pound was at $1.4126 from $1.4053, and the dollar was at CHF1.1710 from CHF1.1763.

However, analysts don't expect this bounce in risk appetite to stay for long.

"There's no getting away from the plunge in stocks. Currency's can't really perform on the basis of local fundamental factors as long as slumping stocks dominate market sentiment," said Steven Barrow, head of G10 strategy at Standard Bank in London. "What's more, the evidence seems to suggest that the weaker U.S. stocks become, relative to other stock markets, the stronger the dollar becomes."

Beside the open of equities markets, traders are awaiting remarks by Federal Reserve Chairman Ben Bernanke at 10 a.m., EST. At the same time, January pending home sales data will be released.

Meanwhile, in an interview with U.K. newspaper the Daily Telegraph published Tuesday, U.K. Chancellor of the Exchequer Alistair Darling said the Bank of England could boost the money supply through the purchase of assets this month.

The BOE Monetary Policy Committee has cut its key interest rate by four percentage points since October and unanimously decided at its last meeting to request permission to initiate such action, also known as quantitative easing.

Analysts expect more details to emerge after the BOE meeting this Thursday.

Canada Morning

The Canadian dollar is higher after touching fresh 3-month lows again overnight, as currency players generally hold their ground ahead of the Bank of Canada's interest rate announcement at 9:00 a.m., EST.

Sentiment toward the Canadian dollar and other risk-sensitive currencies has been improved after the Reserve Bank of Australia unexpectedly opted to hold its key policy rate steady, touching off a strong rally for the Australian dollar.

Canada's central bank is widely expected to cut its key target overnight target rate by 50 bps to 0.50%, with these expectations solidified by a recent string of exceptionally weak data releases, including news Monday that Canada's GDP contracted 3.4% in 2008's final quarter.

For its part, the Canadian dollar is eventually expected to continue weakening in the near-term towards a retest of 4-year lows in the C$1.3000 area last challenged several times in late 2008.

"The fundamental outlook in Canada is quite dim as first quarter employment, trade and growth data all look to be very ugly from here," said currency strategists at Scotia Capital in Toronto.

"This suggests that given the right circumstances, (the dollar) should not have too much trouble trading past 1.30 in the near future," they said, although this would likely require continued softness in equity and commodity prices.

Early Tuesday, the dollar was at C$1.2845, from C$1.2900 late Monday.

European Shares

European Stocks Fall On Banking Losses

European shares slid again on Tuesday, with the Stoxx 600 index briefly hitting a level not seen for more than 12 years, as banks and oil producers lost ground.

The pan-European Dow Jones Stoxx 600 index fell 0.7% to 163.09, resuming Monday's downward trend, when stocks fell 5%.

Oil producers were some of the weakest performers in the index on Tuesday, with BP shares down 3.4% and Total shares down 1.5%.

On a regional level, the U.K. FTSE 100 index fell 1.1 % to 3,585.45, the German DAX 30 index lost 0.1% to 3,708.36, while the French CAC-40 advanced 0.3% to 2,590.24 amid gains for Sanofi-Aventis.

Although stocks bounced back a bit in early trading in Europe they couldn't hold onto gains and the Stoxx 600 fell to a low of 162.02 for a short time. It hasn't traded at this level since late 1996.

"The move to the upside was technical after the 5% we lost yesterday. The selling pressure remains extremely high. All the problems are still on the table with the financial sector, the bad economic news, the bad corporate news," noted Philippe Gijsels, strategist at Fortis Bank.

"Until we see a clear resolution for the financial sector that the market believes in, until we see a bottom for the economy and you see an improved technical picture, it will be extremely difficult for this market to turn around," said Gijsels

Financials fell again on Tuesday, with banking-sector heavyweight HSBC Holdings (HBC) down another 2.2% in London.

Europe's biggest lender closed almost 20% lower on Monday after it announced that it will raise 12.5 billion pounds by issuing discounted shares to existing shareholders, the largest such fund raising by a U.K. company.

Other banks under selling pressure included Credit Suisse (CS), down 4%, and Societe Generale, down 2.3%.

Still Deutsche Bank shares rose 1.7% in Frankfurt.

Nomura analysts said that they consider the lender to be one way of gaining short-term exposure to investment bank upgrades. They believe that investment banks will see less balance sheet risk and outperform many commercial banks.

Drug makers also gained ground in Europe, with Roche Holding shares up 3.6%. Analysts at J.P. Morgan recommended that investors buy shares in the firm ahead of details of its Genentech (DNA) deal.

AstraZeneca shares rose 2% and GlaxoSmithKline shares advanced 1.8%. Sanofi-Aventis (SNY) shares rose 1%.

However, shares in German drug maker Bayer dropped 2.9%.

Fourth-quarter net income rose 58% to 107 million euros ($134 million) after a year-earlier tax hit, with sales down 1.5% to 7.92 billion euros. The group noted growing HealthCare and CropScience sales but a drop in MaterialScience sales.

Irish building materials group CRH also traded lower, down 1.8% to 15.07 euros.

It said that it will issue 152.1 million new shares at 8.40 euros a share to raise 1.24 billion euros ($1.57 billion) and strengthen its financial flexibility. It also reported that its fiscal-year net profit fell 7% to 1.3 billion euros on flat revenue of 21 billion euros.

K+S shares fell 5.4% in Frankfurt.

The U.K.'s Daily Telegraph newspaper reported that the firm is mulling a $2.4 billion cash bid for Compass Minerals which operates Britain's largest rock salt mine.

Commodities

Nymex Crude Up After Pipe Blast; Equities Eyed

The price of crude oil rose more than $1 a barrel Tuesday as supply tightened and U.S. stock markets opened higher.

Light, sweet crude for April delivery was recently up $1.42, or 3.5%, at $41.57 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures Europe exchange was $1.36 higher at $43.57 a barrel.

The modest gain followed a 10% loss Monday, and was fueled in part by traders' response to an explosion on a Nigerian pipeline operated by Royal Dutch Shell PLC (RDSB.LN). The line feeds into the Escravos export terminal. A number of facilities were shut around the pipeline to minimize potential environmental damage, a Shell spokeswoman said, without specifying how much volume was affected.

The pipeline blast gave oil "a bit of a bounce," said Tom Bentz, a broker and analyst at BNP Paribas Commodity Derivatives in New York. However, "the market is pretty much still being dominated by events in the financial markets."

Nymex crude fell $4.61 a barrel Monday, when the Dow Jones Industrial Average closed nearly 300 points lower. On Tuesday, the blue-chip average opened up 78 points.

World oil demand has dropped amid a bleak economic landscape, prodding producers to rein in supply. The Organization of Petroleum Exporting Countries, which supplies 40% of the world's crude, is set to meet March 15 to discuss output. Since September the cartel has agreed to cut output by 4.2 million barrels a day.

In a note Tuesday, Barclays Capital analyst Costanza Jacazio said "a small incremental output cut is the most likely outcome" of the meeting. But the odds of a cut are still uncertain, she said, as oil prices have stabilized above $40 a barrel in recent weeks, past cuts have taken hold and U.S. oil imports have fallen.

At 4:30 p.m. EST, the American Petroleum Institute is expected to release weekly estimates of U.S. oil stockpiles. A separate survey from the U.S. Energy Information Administration is due at 10:30 a.m. EST Wednesday. Analysts polled by Dow Jones Newswires see crude inventories rising by 900,000 barrels.

U.S. oil inventories rose to their highest point since July 2007 in the prior week's government data, to 351 million barrels. The surging stockpiles have kept pressure on the spot price of oil.

Front-month April reformulated gasoline blendstock, or RBOB, rose 2.43 cents, or 1.9% to $1.3105 a gallon. April heating oil rose 4.09 cents, or 3.6%, to $1.1921 a gallon.

Energy Stories

Top Energy Stories Of The Day

CRUDE UP AS MKT EYES SUPPLY; ECONOMY CAPS GAINS
Crude oil futures claw back around $1 of Monday's losses, with relatively calmer equity markets allowing traders to focus more on oil market fundamentals, including news of a pipeline blast in Nigeria.

EXPLOSION ON SHELL OIL PIPELINE IN SOUTHERN NIGERIA
An oil pipeline operated by the Royal Dutch Shell that feeds into the key export Escravos terminal in southern Nigeria has exploded, a company spokesman says.

GAZPROM NET JUMPS ON HIGH EXPORT PRICES
Gazprom, the world's largest producer of natural gas, unveils a 16% rise in 3Q net profit, helped by high European export prices, but below analysts' expectations.

SHELL ACCEPTS BG OFFER FOR PURE ENERGY
BG Group moves closer to securing control of Pure Energy Resources after Royal Dutch Shell said it would sell its 11% stake in the coal seam gas producer to BG for $660 million, provided a higher offer doesn't emerge.

IBERDROLA, INTER RAO TO SIGN ENERGY COOPERATION DEAL
Spain's Iberdrola and Russia's Inter Rao are expected to sign a cooperation deal today, covering electricity generation, distribution and supply in Russia, the Commonwealth of Independent States, the E.U. and Latin America.

AWE SEEKS EUROPEAN ACQUISITIONS
Australia Worldwide Exploration says it is looking for acquisition opportunities in Europe, as well as Australia and New Zealand.

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