Wednesday, October 22, 2008
| by: ADVFN Newsdesk Forex FOREX-Dollar climbs as demand for cash trumps fundamentals LONDON - The dollar staged a broad rally on Tuesday to hit a 1-1/2-year high against a basket of currencies, fuelled by demand from banks for funding needs while investors unloaded highly-leveraged positions. The U.S. currency also found favour after Federal Reserve Chairman Ben Bernanke endorsed on Monday more government spending to stimulate the flagging U.S. economy. By contrast, the euro lost ground because of market expectations that there was scope for the European Central Bank to cut interest rates aggressively. Yen strength reflected underlying nerves on the global economic outlook. While interbank lending has started to revive from a state of near-paralysis, the dollar and yen benefited as investors continued to liquidate highly-leveraged positions. "The deleveraging story will continue and remain in place for quite some time," said Audrey Childe-Freeman, senior FX strategist at Brown Brothers Harriman in London. "The other interesting thing coming through is the policy responses to the crisis. I think the U.S. remains ahead on that front." The dollar index, which measures the U.S. currency's value against a basket of six currencies, rose to 83.646, its highest since March 2007. The euro hit its lowest since March 2007 at $1.3197, down around 1 percent on the day. Traders cited overnight speculation that banks needed more dollars to settle credit derivatives tied to the liquidation of Lehman Brothers. The dollar fell 1 percent against the yen to 100.95 yen, while the euro dropped 1.9 percent to 133.34 yen. FUNDAMENTALS TO REIGN AGAIN? As financial markets regain some poise, analysts said the market's focus was switching to economic fundamentals and monetary policy. Fed chief Bernanke said on Monday the economy was expected to be weak for several quarters and there was some risk of a protracted slowdown. Fed policymakers meet next week, and economists and investors expect rates to be cut again from their current 1.5 percent. The Fed and other major central banks eased monetary policy in coordination earlier this month. "Central banks will at least take heart from the ongoing drop in Libor spreads over their policy rates that monetary policy may once again be able to influence the real economy," Calyon strategists said in a note to clients. The high-yielding Australian dollar fell 2.6 percent against the U.S. dollar on expectations the Reserve Bank of Australia would also ease monetary policy again. RBA minutes from its meeting earlier this month indicated there was more room for rate cuts, though these were unlikely to be as aggressive as this month's full one percentage point cut. US Stocks at a Glance US STOCKS-Market drops on recession, profit worries NEW YORK - U.S. stocks slid at the open on Tuesday as recession fears fueled a sell-off in commodity-related companies, including Exxon Mobil Corp, and earnings reports and outlooks sparked caution. The Dow Jones industrial average was down 118.75 points, or 1.28 percent, at 9,146.68. The Standard & Poor's 500 Index was down 14.95 points, or 1.52 percent, at 970.45. The Nasdaq Composite Index was down 29.63 points, or 1.67 percent, at 1,740.40. HEADLINE STOCKS-U.S. stocks watch on Tuesday: PFIZER INC The stock rose 2.7 percent to $17.80 before the bell on Tuesday after the pharmaceutical company, a Dow component, posted third-quarter profit above Wall Street's estimates. DUPONT DuPont Co dropped 2 percent to $35.50 before the bell on Tuesday after the chemical maker, a Dow component, slashed its full-year profit forecasts. COACH INC The stock rose 7.4 percent to $20.00 in premarket trade on Tuesday after the handbag maker reported quarterly earnin gs that beat the median Wall Street estimate. CATERPILLAR INC The stock rose 2.6 percent to $42 before the bell on Tuesday after the maker of bulldozers and excavators reaffirmed its full-year profit outlook. CITIGROUP MORGAN STANLEY Goldman Sachs reinstated Citigroup with a "sell" rating and recommended a "paired" trade in which investors sell Citigroup short, betting on a decline, and buy Morgan Stanley shares. Shares of Citigroup fell 4 percent to $14.45 in trading before the bell, while Morgan Stanley slipped by about 2 percent to $19.41. TEXAS INSTRUMENTS INC The chip maker warned that its fourth-quarter results would fall far short of expectations in the latest sign that the economic crisis is hurting demand for everything from cell phones to industrial equipment. The stock was down 9.3 percent at $13.30 before the bell. FORD MOTOR CO Billionaire investor Kirk Kerkorian sold part of his 6.5 percent stake in Ford and could sell the rest of his stake in the No. 2 U.S. automaker, Kerkorian's investment vehicle Tracinda Corp said on Tuesday. Ford shares were down 4.7 percent to $2.22 before the bell. Europe share FTSE up by midday; oils, insurers edge higher LONDON - Britain's top share index was up by midday on Tuesday, as gains in energy and insurance stocks helped the broader market overcome an earlier bout of profit-taking. At 1143 GMT, the FTSE 100 index was up 6.1 points, or 0.1 percent, at 4,288.44, down from an early peak of 4,347.69. The blue-chip index closed 219.66 points higher at 4,282.67 on Monday. "It's not the miners, for a change, which are heading the market gainers, but a spread of various stocks, which must be a good sign after recent single-sector led action," said Mark Priest, trader at ET Capital. Gas producer BG Group was the largest individual positive contributor, rising 5.6 percent after an upbeat broker note, while Royal Dutch Shell gained 2.2 percent. Oil services firm Wood Group rose 3 percent, shrugging off a dip in the oil price, with Petrofac up 6 percent as the sub-sector continued to receive support following better-than-expected results from U.S. peer Halliburton on Monday. Xstrata gave the mining sector a boost, rising 8.5 percent on market talk of a possible stake-build, traders said. Rio Tinto and BHP Billiton rose about 3 percent. Xstrata, which rose by as much as 13 percent when talk surfaced that Brazil's Vale was interested in building a near 30 percent stake in the company, declined to comment on the talk. The stock was already up following a third-quarter trading update and the firm's comment that it has no significant debt refinancing requirements until 2011. The London marke t managed to shake off data that showed a drop in confidence in the manufacturing sector. "The market was jittery earlier when Dow futures were being sold off, but after the CBI report, which was not great but no big surprise, the FTSE has moved higher," said Priest. The Confederation of British Industry's quarterly business situation balance registered -60 in October versus -40 in July, its lowest level since July 1980. "What we all need are a few up days to settle the market," Priest added, "and if we can get another decent performance from the U.S. today then we might be on track for a good week." Pru said its sales rose 15 percent in the first nine months of the year, and confirmed it was interested in buying parts of American International Group's Asian business. p; Banking issues were mixed. Royal Bank of Scotland lost 7 percent, paring some of Monday's 23 percent as investors continued to assess the impact of the government bail-out on the firm's ability to increase dividends. HSBC also eased, down 3.6 percent, after its move on Monday to expand in Indonesia with the acquisition of 89 percent of Bank Ekonomi. HBOS was the top percentage gainer on the FTSE 100, rising 10 percent to recoup some of Monday's losses, helped by supportive moves by its biggest shareholder Standard Life on its rescue takeover by Lloyds TSB, which rose 0.5 percent. Other gainers included Tullow Oil, which rallied 6.5 percent after the firm and its midcap partner, Heritage Oil , which gained 13 percent, unveiled a significant new oil discovery in Ug anda. Asia at a Glance Hong Kong shares close lower as CITIC Pacific, China Mobile slump HONG KONG - Share prices closed lower as conglomerate CITIC Pacific tumbled 55 pct after warning of huge forex losses and telecoms giant China Mobile slumped 5 pct following disappointing third-quarter earnings. The market got off to a good start following a Wall Street rally but lost steam as CITIC Pacific's disclosure of a potential 15.5 bln hkd loss from unauthorized foreign currency bets sparked fears that more such revelations could be on the way from other firms. Volumes remained light, helping limit the downside, with oil producer CNOOC also providing some support as it gained more than 3 pct on higher crude oil prices. The Hang Seng index closed down 281.84 points or 1.84 pct at 15,041.17, off a low of 14,884.07 and high of 15,616.96. Turnover was 50.67 bln hkd. "There was strong selling pressure above the 15,000 points level mainly because of CITIC Pacific and China Mobile," said Kenny Tang, research director at Tung Tai Securities. "Over the past year or two, investment banks pushed many companies, especially industrial firms, to use hedges to cover risks in their foreign exchange transactions," he said. "CITIC Pacific's problems raised fears that other locally-listed companies might have also used currency accumulators and might eventually be in trouble," Tang said. Such fears led to the local bourse's fall despite strong gains on Wall Street overnight and in major regional markets today, he said. CITIC Pacific said its 2008 results will include a realized loss of 807.7 mln hkd on some leveraged foreign exchange contracts and will also reflect mark-to-market losses on the same contracts, which currently stand at 14.7 bln hkd. The company, a unit of China's biggest state-owned investment company, said its finance director Leslie Chang exceeded authorised limits in signing hedging contracts, and that Chang and financial controller C.Y. Chau have resigned in the wake of the scandal. The company's problems arose following bad bets on the Australian dollar, which has slumped about 30 pct after hitting multi-year highs in July. Citigroup downgraded CITIC Pacific to "sell" from "buy" and slashed the target to 6.66 hkd from 28, noting that forex contracts were done without proper authorization, not evaluated correctly, nor reported appropriately. "A cowboy hedging policy sees CITIC sitting on unlimited potential losses," Citigroup said in a note. Goldman Sachs cut CITIC Pacific to "sell" from "neutral" and reduced the target to 12.5 hkd from 31.5. Tang said index heavyweight China Mobile also served as a major drag to the market. "Its third-quarter earnings growth failed to meet most people's expectations and this heightened worries that growth will be slower going forward," he said. "The fall in its average revenue per user also disappointed investors," he said. China's top mobile operator announced yesterday that its January to September net profit rose 37.9 pct to 82.59 bln yuan from a year earlier as significant increases in subscriber numbers, value added services and voice usage offset a modest decline in ARPU. However, earnings growth in the third quarter eased as competition intensified, with the company posting a profit of 27.79 bln yuan for the three months, up only 26 pct from a year ago. Tang said sentiment towards China Mobile is also undermined by worries that its future growth prospects will be curtailed by Beijing's desire to promote greater competition in the country's mobile market. "After mainland authorities gave China Telecom and China Unicom a chance to compete with China Mobile in the 3G market, it's anybody's guess if the latter will face more regulations aimed at promoting greater competition," he said. China Mobile ended down 3.55 hkd or 4.99 pct at 67.55, while CITIC Pacific tumbled 8.0 hkd or 55.1 pct to 6.52. Among other blue chips, HSBC was down 0.10 hkd or 0.09 pct at 106.90, Hong Kong Exchanges and Clearing fell 2.50 hkd or 2.92 pct to 83, China Life lost 0.90 hkd or 3.72 pct at 23.30 and Hutchison Whampoa was up 0.30 hkd or 0.62 pct at 48.30. In the China banking sector, ICBC was down 0.13 hkd or 3.35 pct at 3.75, China Construction Bank was down 0.13 hkd or 3.54 pct at 3.54 and Bank of China was down 0.11 hkd or 4.35 pct at 2.42. Oil producer CNOOC surged 0.20 hkd or 3.33 pct to 6.20 as crude oil prices rose further on expectations of an output cut by OPEC. PetroChina--which has both upstream and oil refining business-- was up 0.04 hkd or 0.62 pct to 6.45, while refiner Sinopec fell 0.06 hkd or 1.04 pct to 5.70. Mainland property developers were mixed amid continuing hopes that Beijing will take further measures to support China's sagging real estate market. Agile Property jumped 0.10 hkd or 3.39 pct to 3.05, while Shimao Property was down 0.03 hkd or 0.7 pct at 4.28 and Guangzhou R&F slipped 0.12 hkd or 2.18 pct to 5.39. China Overseas Land & Investment rose 0.14 hkd or 1.54 pct to 9.21 after it said discussions on possible disposal of some non-core assets are in the final stage. China Shenhua rose 0.80 hkd or 5.33 pct at 15.80 after it said its commercial coal output in nine months to September rose 17.6 pct year-on-year to 137.9 mln tons. China Telecom was up 0.03 hkd or 1.05 pct at 2.89 after reporting that its third-quarter net profit rose 1.3 pct to 5.62 bln yuan from a year earlier as broadband business growth helped offset slowing fixed line services operation. Ping An Insurance was down 2.0 hkd or 5.46 at 34.60 on continuing concerns over losses on its investment in Europe's Fortis. The Hang Seng China Enterprises index ended down 174.01 points or 2.34 pct at 7,267.12. Labels: ADVFN NewsDesk, Forex Analysis |
posted by Matbank at 12:26 AM
