Saturday, October 25, 2008
World Daily Markets Briefing
| by: ADVFN Newsdesk Forex FOREX-Yen rockets broadly as risk aversion hits extremes LONDON - The yen rocketed to multi-year highs versus the dollar and euro on Friday, as tumbling global stock markets intensified risk aversion, crystallising investor fears on the possibility of a prolonged global recession. Staggering moves seen in the stampede towards the low-yielding Japanese unit, with euro/yen dropping 10 percent at one point, also kindled speculation over how central banks might respond. This is because the yen's rally gathered speed, outstripping major dollar gains against a basket of currencies, even as Japan's prime minister warned against the adverse impact of financial market fluctuations. "We are seeing extreme risk aversion. The thing to note in the FX market is that it's getting a bit disorderly -- this is becoming a rout. The move in the yen will rattle policymakers in Japan," said S G currency strategist Phyllis Papadavid in London. The euro fell more than 10 percent against the yen to hit a low of 113.82 yen, on track for its biggest monthly percentage loss on record against the Japanese currency. By 1020 GMT, the dollar was down almost 6 percent against the yen at 92.60 yen after hitting a 13-year low of 90.95, according to Reuters data. Japanese Prime Minister Taro Aso warned against the adverse impact of financial market fluctuations on the economy. Data from the euro zone on Friday proved dismal, with German manufacturing sector contracting in October at its fastest rate in over seven years. A flash estimate showed the Markit purchasing managers' index (PMI) for the manufacturing sector fell to 43.3 from 47.4 in September. Sterling sank to a six-year low against the dollar, whi le the pound also hit a record low against the euro as high-yielders fell victim unwinding of highly leveraged positions. The pound was also hit after data showed the UK economy shrank by a bigger-than-expected 0.5 percent in the third quarter. The sharp surges in the dollar and yen have raised concerns that financial authorities may act in currency markets to rein in volatile moves. "If we were to continue to see the dollar strengthen, which may very well be the case, that could potentially be quite destabilising," said SG's Papadavid. "I think at some stage in the near to medium term, were we to see the dollar continue to disconnect from economic fundamentals and overshoot, we could see some coordinated move to weaken the dollar against some of the majors but i don't think we're there yet." The dollar index, a gauge of its value against a basket of six major c urrencies, was up 2.0 percent at 86.451 after hitting a two-year high. To combat the currency rout in emerging markets, the International Monetary Fund was hurrying to approve by early November a package that would let some "top-tier" emerging market economies exchange local currencies for dollars to ease strains, officials familiar with the plan said. US Stocks at a Glance TOPWRAP 8-Mkts in tailspin, Wall Street drops 5 pct NEW YORK - Wall Street joined a global stock market rout on Friday that kicked off in Japan, led Russia to suspend trading and sent oil and other commodities tumbling on fears of a deep worldwide recession. U.S. stock indexes fell 5 percent in early trade. News that Britain's economy contracted in the third quarter deepened fears of a worldwide recession, born of the worst financial crisis in 80 years. Foreign exchange markets saw extreme volatility with the yen rocketing to multiyear highs against the dollar and euro. The euro/yen rate fell 10 percent at one point. Britain's economy shrank 0.5 percent in the third quarter and euro zone figures showed the 15-nation currency bloc was already in recession, analysts said. Stock markets were i n freefall around the world as panicked investors moved to liquidate risky positions. Japan's Nikkei index ended down 9.6 percent and European shares dropped 8 percent. For more see. The Dow Jones Industrial Average lost 4.7 percent while the S&P 500 shed 4.7 percent and the Nasdaq plummeted 5.1 percent in early trade. Russia suspended trading on its stock market until at least Tuesday after the market lost more than a tenth of its value on Friday, hitting its lowest levels since late 2004. "The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth," Chinese Premier Wen Jiabao told an Asia-Europe Meeting of 27 EU member states and 16 Asian nations. OPEC, meeting in emergency session, agreed to cut oil output by 1.5 million barrels per day in an attempt to halt the steep slide in the price of oil. But the price of U.S. crude fell more than 5 percent to $64 as economic gloom overshadowed the cut. Commodities from copper to zinc, sugar and coffee were battered by sharp selling -- bad news for emerging market economies that are major commodity producers and depend on exports for much of their revenue. The price of U.S. government bonds rose sharply as investors switched out of stocks. Bank of England Deputy Governor Charl es Bean said Britain's economy was still in the early days of weakness as a result of possibly the worst financial crisis in history. "This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history," Bean told the Scarborough Evening News. A survey of companies showed the euro zone private sector economy on track for its worst performance since the recession of the early 1990s. The October Markit Eurozone Flash Purchasing Managers' Indexes show services business contracting at its fastest pace since after the Sept. 11, 2001 attacks. Factory output was shrinking at the greatest rate in at least a decade. "This is it, we are clearly into recession," said Gilles Moec, economist at Bank of America. A range of corporate giants reeled too, not just the banks that were hit first and hard est by a financial crisis that began with a U.S. housing market collapse. Sony's shares plunged to a 13-year low after it halved its profit forecast. French carmaker PSA Peugeot Citroen cut its full-year operating margin target and said it planned to make "massive" production cuts in the fourth quarter after posting a 5.2 percent fall in third quarter sales. Air France-KLM also succumbed to the financial crisis with a profit warning, sending shares in Europe's largest airline group down about 7 percent. U.S. bank PNC Financial Services Group Inc said it agreed to buy National City Corp in a $5.6 billion transaction, in a deal that would save the ailing Cleveland-based bank. Europe share Europe shares slide on warnings, economy fears LONDON - European shares slid 8.5 percent on Friday to mirror a tailspin in Asian stocks, as data suggesting Britain would enter a prolonged recession and torrent of woeful company results rattled jumpy investors. At 0937 GMT the pan-European FTSEurofirst 300 index was down 8.5 percent at 798.86 points, having hit its lowest since May 2003 at 796.94 points. Global stocks tumbled to a new five-year low on Friday and demand for the relative safety of government bonds and low-yielding currencies soared. In Asia Japan's Nikkei slid 9.6 percent on fears over a deteriorating world economy as a financial crisis gathered speed. Stricken banks led the decline, with HSBC down more than 10 percent, Santander off more than 9 percent and UBS shedding 7.4 percent. The European banks sector dropped 9.2 percent. "It does shock you ... One hasn't been expecting this," Edward Menashy, an economist at Charles Stanley in London, said of the market's decline. "The fall in the Japanese market is incredible...The fear today is that the Japanese carry trade is starting to unwind." Around Europe, Britain's FTSE 100 slid 6.1 percent, Germany's DAX dropped 7.4 percent and France's CAC lost 7.1 percent. The British economy shrank more than expected and for the first time in 16 years in the third quarter of 2008, official data showed on Friday. The figures will likely boost expectations that the Bank of England will cut interest rates by another 50 basis points next month as the economy looks like h eading into its first recession since the early 1990s. "Markets have been steeling themselves for that announcement for a considerable period ... (but) the recession to come is going to be much steeper than anyone had anticipated," Menashy said of the British GDP data. Sterling tumbled to its lowest level against the dollar since 2003 following the data. Gloom abounded across the continent, with a survey of companies showing the euro zone private sector economy in October took its biggest hit since monetary union, and is on track for its worst performance since the recession of the early 1990s. Volvo, the biggest faller in Europe, dropped more than 21 percent after reporting worse-than-expected third-quarter results. The world number two truck maker's top executive said on Friday the North American market, which has been weak for almost two years, was likely to remain tough in 2009. Peugeot and Renault 14 percent and 18 percent, respectively, after issuing profit warnings. Oil shares also tanked as crude prices fell below $66 a barrel, to new 16-month lows, pressured by gloom across all markets about a global economic downturn that could reduce the impact of any cut in oil output from OPEC. BP, Royal Dutch Shell and Total shed between 6.7 and 7.2 percent. Miners took a whipping as gold and copper prices tumbled, with Vedanta Resources down 10.6 percent, Kazakhmys off 8 percent and Xstrata down 7.8 percent. Shares in Ahold were the sole risers in Europe, up 5.4 percent and as the Dutch supermarket retailer posted a 3.9 percent rise in third quarter sales, at the top end of analysts estimates. Asia at a Glance Asia Market Summary The Nikkei slid 9.6 percent to a 5- year closing low on Friday, a 50 percent fall for the year, hit by the double punch of a Sony Corp profit warning and the dollar's fall to a 13-year low below 93 yen. South Korea's benchmark KOSPI tumbled 10.6 percent on Friday and suffered its ever worst week on record, while the won dropped almost 4 percent against the dollar. HONG KONG - Share prices closed sharply lower, capping eight straight weeks of losses, in another regionwide sell-off as fears grew that the global economic slump will take a big toll on corporate earnings. HSBC led the decline as the index heavyweight tumbled over 12 pct to a more than 5-year low on concerns that its growth will slow in emerging markets, which prompted target cut by a broker. Worries about currency-related losses at companies, following disclosures by CITIC Pacific, China Railway Group and China Railway Construction this week, also sent investors fleeing from equities. Meanwhile, the Japanese yen's surge to multi-year highs against major currencies spurred massive unwinding of positions by some funds as they sought to repay yen-denominated loans. The Hang Seng index closed d own 1,142.11 points or 8.3 pct at the day's low of 12,618.38, after moving to a high of 13,478.63. Today marked the lowest finishing level for the index since Aug 23, 2004 when it ended at 12,431.77. The index has lost 1,936 points or 13.3 pct this week and 5,398 points or 30 pct so far this month. For the year to date it is down 15,194 points or 54.6 pct. The index has fallen 60 pct from its all-time closing high of 31,638 points on October 30 last year. Turnover today was 56.14 bln hkd. "The Japanese yen's surge against major currencies forced many investors to sell down stocks at any price so they could repay yen-denominated loans," said Eugene Law, head of research at Celestial Asia Securities Holdings. "This, together with fears that Argentina and other developing countries might go bankrupt, pressured Asian markets, including Hong Kong," he said. The Japanese currency hit a 13-year high against the US dollar and a six-year peak against the euro today as fears of a global economic recession and emerging market troubles prompted companies and investors to cut overseas investments and repatriate funds. Labels: ADVFN NewsDesk, Forex Analysis |
posted by Matbank at 5:26 AM
