Monday, November 10, 2008
Nov-10 World Daily Markets Briefing
| by: ADVFN Newsdesk Forex FOREX-Euro, high-yielders climb as stocks rally on China LONDON - The euro climbed on Monday after China announced major initiatives to stimulate its economy, which cooled risk aversion and boosted share prices while putting the dollar and the yen under selling pressure. Risk demand also improved after financial officials from the Group of 20 nations at a weekend meeting said they would take "all necessary actions" to get financial markets back to normal and counter the backlash of the credit crisis. China launched an economic stimulus package on Sunday worth nearly $600 billion in what could mark the start of a round of big spending or interest rate cuts to stave off a recession in many countries. Analysts said that the initiative was unlikely to provide an immediate fix to the struggling global economy, while acknowledging that it was a step in the right direction and highlighted the potential for fiscal stimulus from countries that are not hampered by big budget deficits. "Risk appetite seems to be a bit better because nations are doing more to boost their economies," said Paul Robson, a strategist at RBS. "Moves like China's could focus attention on countries who have room to tweak or change fiscal policy quite aggressively." Countries around the world have been slashing interest rates to buffer their economies against the negative impact of the global downturn, while many nations are mulling fiscal measures to essentially spend their way out of recession. The Bank of England shocked markets last week by lopping 1.5 percentage points off its benchmark rate to 3.0 percent, its lowest since the 1950s, while the European Central Bank cut rates by 0.5 percentage points to 3.25 percent. ECB President Jean-Claude Trichet said on Monday the central bank won't change its inflation-focused strategy. On Sunday, Trichet reiterated that the ECB does not exclude cutting rates in December, underscoring market expectations that the central bank will continue to cut rates to shore up its economy. At 1124 GMT, the euro rose roughly 1.4 percent against the dollar to a session high of $1.2927. Sterling also rose, climbing 0.8 percent to $1.5870. The yen fell broadly, pushing the dollar up one percent to 99.30 yen, while the euro rose two percent to 128.03 yen. The Australian dollar rose 2.7 percent against the dollar, and climbed 2.2 percent against the yen. The high-yielding Aussie dollar was among the biggest beneficiaries of the lull in risk aversion, even as the Reserve Bank of Australia cut its growth forecast on Monday. Despite share price rallies, currency markets remain jittery, with ongoing worries about a global recession ensuring any recovery in risk appetite remains tentative. Analysts also expressed concern that China has had to take such drastic action to tackle the economic crisis. "Even this huge package will hardly prevent the global recession. Euro/dollar should therefore end the current correction phase with a break to the downside," analysts at Commerzbank said in a note to clients. On Friday, key U.S. data emphasised the problems facing the world's largest economy as it lost 240,000 jobs during October. US Stocks at a Glance US STOCKS-Wall St opens up on China's spending boost NEW YORK - U.S. stocks opened higher on Monday, with big U.S. exporters including General Electric leading gains following China's plan of a multibillion economic stimulus to shore up the world's fourth-largest economy. The Dow Jones industrial average rose 211.95 points, or 2.37 percent, to 9,155.76. The Standard & Poor's 500 Index jumped 20.84 points, or 2.24 percent, at 951.83. The Nasdaq Composite Index lifted 31.32 points, or 1.90 percent, at 1,678.72. WRAPUP 1-US government restructures AIG bail-out WASHINGTON - The Federal Reserve said on Monday the U.S. government would buy $40 billion of shares in insurer American International Group as part of a restructured bail-out package intended to prevent the firm from collapsing. The new package will allow the Fed to cut to $60 billion from $85 billion the total available to AIG under a credit facility set up in September. The U.S. government would lower the interest rate on loans to the firm and establish two facilities to buy mortgage-backed securities from AIG and collateralised debt obligations on which AIG has written credit default swap contracts, the Fed said in a statement. "The U.S. Treasury ... will purchase $40 billion of newly issued AIG preferred shares under the Troubled Asset Relief Program," the Fed said. "This purchase will allo w the Federal Reserve to reduce from $85 billion to $60 billion the total amount available under the credit facility established by the Federal Reserve Bank of New York on September 16, 2008." The government gave AIG, once the world's largest insurer by market value, $85 billion in bail-out financing in September after counterparties and rating downgrades forced it to post large amounts of collateral for credit derivatives positions. It later offered additional financing to bring the support extended to AIG up to $123 billion. The Fed lowered the interest rate on the credit facility established Sept. 16 to three-months LIBOR plus 3 percentage points from the current LIBOR plus 8.5 percentage points. "These new measures establish a more durable capital structure, resolve liquidity issues, facilitate AIG's execution of its plans to sell certain of its businesses in an orderly manner, promote market stability, and protect the interests of the U.S. government and taxpayers," the Fed said. Credit default swap agreements have led AIG to record $18 billion in losses over the past three quarters. Mounting collateral calls left it so severely short of cash that it was veering towards Liquidation. The U.S. Treasury said its $40 billion investment would subject AIG -- which it called a "systemically important company" -- to the same curbs on executive bonuses and golden parachutes as other financial institutions that receive government capital injections. The rescue package was announced as the insurer posted its largest-ever quarterly loss, hurt once more by write-downs on assets linked to subprime mortgages and capital losses. AIG said its third-quarter net l oss was $24.47 billion, or $9.05 a share, compared with a year-earlier profit of $3.09 billion, or $1.19 a share. AIG shares rose about 14 percent to $2.41 in response. A year ago, AIG stock was trading at about $57 a share. It closed at $2.11 on Friday, off an all-time low of $1.25 in the hours before the federal government stepped in on Sept. 16 with an $85 billion loan. Europe share European shares rise, boosted by Chinese package FRANKFURT - European share prices rose by midday on Monday, boosted by mining stocks which jumped after China unveiled a nearly $600 billion economic stimulus plan to boost domestic demand. At 1151 GMT, the FTSEurofirst 300 index of top European shares was up 2.8 percent at 940.64 points, on track for its eighth day of gains in the last 10. The DJ Stoxx European basic resources index jumped 12.7 percent, tracking metal prices. Rio Tinto, Kazakhmys, Xstrata and Antofagasta recorded gains of 9-16 percent. Steelmaker ArcelorMittal jumped 16.6 percent, and a 5.8 percent rise in oil prices lifted BP, Total and Shell by 2.9-5.3 percent. China approved a $586 billion government spending package and announc ed a shift to "moderately easy" monetary policy despite having already made three interest rate cuts since mid-September. "Governments clearly understand this is very serious and are working on two fronts: Keynesian, with fiscal stimulus, and Friedman with cutting interest rates and putting liquidity into the system," said Philippe Gijsels, strategist at Fortis Bank, in Brussels. Gijsels pointed out that U.S. stocks rallied on Friday after the European close, despite weak U.S. jobs data, which indicated that bad news was now factored into share prices. "This market is very much oversold, we have been very cautious on the markets since January .. the chances are very good for a bear market rally from now," he said. European shares have risen 15 percent over the past two weeks but are still down 38 percent this year, hammered by a credit crisis that piled up losses at top banks and slowed the economy. Around Europe, Britain's FTSE was up 3 percent, Germany's DAX up 3.4 percent and France's CAC was 3.5 percent higher. "Commodity stocks are rising, on the other hand you see that financial stocks are having further problems, so while there is a little hope for the economic scenario, we still come back to the same old problems," said Hans-Juergen Delp, investment strategist at Commerzbank in Frankfurt. Santander fell 5.6 percent to 7.87 euros after it unveiled a surprise 7.2 billion euro rights issue at 4.5 euros a share. Europe's biggest insurer Allianz fell 1.6 pe rcent after reporting worse-than-expected third-quarter operating figures, and abandoning its operating earnings targets for this year and next. "Share prices are going to remain extremely volatile and we will continue in a bottoming-out phase -- we are a long way from reaching a correction upwards," said Commerzbank's Delp. Markets should brace for poor economic data from the euro zone this week, Goldman Sachs economist Erik Nielsen warned in a note. "In the euro zone, this week will be dominated by GDP and industrial production data," he said. "Fasten your seat belts - its going to be an unpleasant ride." Data released on Monday showed that Italian industrial output plunged 2.1 percent in September, the steepest fall in almost a decade, pointing to a recession which analysts said may prove deep and long lasting. Asia at a Glance Asian Market Summary Japan's Nikkei ended 5.8 percent higher, while Hong Kong's Hang Seng was up 3.7 percent as of 0633 GMT. The main TAIEX stock index fell 2.06 points to close at 4,740.27, despite gains in regional markets following moves by China and other G20 nations to fight the economic slowdown by lending support to exporters. China A-shares closed sharply higher after the government announced a 4 trln yuan stimulus package to boost domestic demand. Construction-related stocks led an across-the-board rally after the State Council said last night that the government would spend about 4 trln yuan by the end of 2010 on social welfare, infrastructure, environmental protection and reconstruction projects. Banks and property developers were also in demand after the government shifted its monetary stance to "appropriately loose." The benchmark Shanghai Composite Index closed up 127.09 points or 7.27 pct at 1,874.80, the biggest percentage rise since late September. Around that time, the government announced a series of market-supporting measures, including the removal of stamp duty on share purchases and sovereign wealth fund support for shares of major state-owned banks. Turnover nearly doubled to 56.87 bln yuan from 28.64 bln on Friday. The Shanghai A-share Index was up 133.40 points or 7.27 pct at 1,969.44, while the Shenzhen A-share Index rose 31.56 points or 6.43 pct to 522.66. The Korea Composite Stock Price Index ended up 1.58 percent at 1,152.46 points, but shed part of an earlier 2.6 percent gain, partly due to a ratings outlook downgrade by Fitch. The 30-share BSE index ended up 571.87 points at 10,536.16, its highest close since Tuesday, with all but two of components gaining. It rose as much as 6.1 percent during trade. The benchmark has risen 37 percent from a three-year low hit on October 27, although it is still down 48 percent in 2008 to be one of the worst performers in Asia this year. Labels: ADVFN NewsDesk, Forex Analysis |
posted by Matbank at 11:31 PM
