Global Markets Overview - 29 December 2011

From Morrison Securities Pty Ltd.

U.S. Stock Markets

U.S. stocks dropped Wednesday, sending the Standard & Poor's 500-stock index back into the red for 2011, as the euro sank to an 11-month low and investors looked ahead with concern to Italy's long-term debt auction Thursday.

The Dow Jones Industrial Average shed 123 points, or 1%, to 12169, and the S&P 500 gave up 13 points, or 1.1%, to 1252. The S&P 500's decline pushed the broad market measure back into negative territory for the year, with just two full days of trading remaining in the year.

The technology-focused Nasdaq Composite fell 29 points, or 1.1%, to 2597. All 10 sectors of the S&P 500, and all 30 Dow components were lower. Pulling most heavily on the downside were materials and energy stocks. Cliffs Natural Resources, Mosaic and Tesoro each lost 3.8% or more to lead the S&P 500 decliners. Among Dow components, Bank of America was again the worst performer of the day, tumbling 3.3% to bring its yearly slide to 60%. Alcoa lost 2.7% and Caterpillar declined 1.9% .


Investors were pulling back from risk ahead of an Italian auction of longer-term government debt on Thursday. Before the opening bell Wednesday, U.S. stock futures pointed higher, boosted by a successful auction of short-term Treasury bills in Italy.

Demand for Italian six-month bills increased from the previous auction, and the average yield of 3.251% was half of the 6.504% average, a euro-era high, paid a month earlier for the same maturity. But that optimism faded as investors looked ahead to Thursday's auction, sending the euro lower and pushing yields for longer-term Italian debt higher throughout the U.S. morning. Adding to the concern, the European Central Bank's overnight deposit facility reached a second-straight record, suggesting that banks would rather park cash there rather than lend it to other banks.

European Stock Markets

European stock markets ended a choppy session in negative territory Wednesday, with German and French shares seeing added pressure after the European Central Bank showed it had significantly boosted lending to banks.

The Stoxx Europe 600 index fell 0.7% to close at 240.74, with volumes low and many traders still away for the Christmas and New Year holidays.

Germany's DAX 30 index extended a decline to end down 2% at 5,771.27, after the ECB said its balance sheet increased by EUR239 billion to EUR2.733 trillion in the week ended Dec. 23. Loans to euro-area banks rose EUR214 billion to EUR879 billion.

The surge comes after the ECB last week provided nearly EUR490 billion in three-year loans to banks in its first-ever three-year liquidity tender. The ECB earlier Wednesday reported that banks deposited a record EUR452.03 billion in its overnight deposit facility. Shares of Deutsche Bank AG lost 4.2% and Commerzbank AG fell 3.8%.

European markets initially rose after a EUR9 billion auction of Italian six-month bills, which sold at an average yield that was around half that seen at a November auction. It was covered 1.7 times, against 1.5 times prior.

The FTSE MIB Italy index erased an early gain to fall 0.9% to 14,796.5. The French CAC 40 index fell 1% to close at 3,071.08, with Credit Agricole SA selling off 3% and Societe Generale SA trading down 3.1%. The FTSE 100 index ended 0.1% lower at 5,507.40. Banks declined, with shares of Barclays PLC losing 3.8% and Royal Bank of Scotland Group PLC falling 3.4%. Grocer Tesco PLC gained 2.3% amid indications of strong post-Christmas sales across the country. Portugal's stocks remained the session's outperformer, following on a strong session the prior day. The PSI-20 index rose 0.4% to 5,482.86, led by Banco Comercial Portugues SA, up 2.4%.

Asia-Pacific Stock Markets

Most Asian markets fell Wednesday, with Hong Kong shares declining as investors returned after a holiday-extended weekend, while mainland Chinese stocks rebounded from 33-year lows in choppy trading. Hong Kong's Hang Seng Index declined 0.6%, Japan's Nikkei Stock Average slipped 0.2%, South Korea's Kospi fell 0.9% and Taiwan's Taiex shed 0.4%.

But China's Shanghai Composite, among the region's worst performing indexes so far this year, rose 0.2% to 2,170.01 after two days of losses.The benchmark traded lower for most of the session, but managed to recover in late trading thanks to gains in banking and resource stocks.

Commodity-linked firms were notable decliners across Asia on concerns about the global economic outlook. Jiangxi Copper lost 2.3% and China Coal Energy declined 1.9% in Hong Kong; in Shanghai, they advanced 1.8% and 0.6%, respectively. Gold miners lost ground as Comex gold futures continued to decline. Zijin Mining Group dropped 2.3% in Hong Kong.

Shares of Tokyo Electric Power dropped 11.9% after Japan's trade and industry minister Yukio Edano Tuesday urged the power utility to consider all options to rebuild its finances, including temporary state control. The broad losses in Tokyo came in the wake of disappointing industrial output data for November, although losses were contained on expectations for improvement in December and January. But some exporters continued to outperform the broader index on hopes for an economic recovery in the U.S. Toyota Motor added 0.8%, while NEC gained 0.7%.


Base metals closed sharply lower on the London Metal Exchange Wednesday after falling in holiday-thinned trade as the euro sank, hitting a new 11-month low against the dollar and a 10-year low against the yen.

LME three-month copper ended the afternoon open outcry session at $7,464 a metric ton, down $176, or 2.3%, from Friday's PM kerb close.

Base metals tend to hold a positive correlation to the euro in European trade, as they are priced in dollars and as such any fall in the euro makes the metals more expensive for buyers using the single currency. They are also sensitive to economic news and speculation as they are widely used in manufacturing and construction.

Market participants said that even though Italy enjoyed a successful bond auction of six-month bills earlier in the session, worries are mounting over Thursday's 10-year bond auction. Holiday-thinned markets, with many participants absent for year-end vacations, exacerbated the move downward across the markets during afternoon trade in Europe, they added. Sucden Financial technical analyst Myrto Sokou said that while the copper market has the potential to move back toward $7,654/ton in the short term, further losses could result in a retest of $6,635/ton.

Crude-oil futures retreated back below $100 a barrel Wednesday, pressured by a sharply stronger U.S. dollar as traders took in profits after a six-session gain of more than 8%.

Traders awaited weekly U.S. data that are expected to show declines in last week's crude inventories, but they also remained wary of Iran's threat to cut off oil shipments in the Middle East region.

Crude for February delivery closed $1.88 lower at $99.46 a barrel on the New York Mercantile Exchange. Renewed investor demand for cash slammed precious metals Wednesday, sending silver to its lowest levels in almost a year and gold to its lowest price in five months.

A sharp weakening in the euro after days of relative calm in currency markets rattled metals traders and prompted some to head to the sidelines. The losses came in low trading volume, market participants said, with many trading desks lightly staffed between the Christmas and New Year holidays.

Silver for March delivery, the most actively traded contract, fell $1.506, or 5.2%, to settle at $27.234 a troy ounce on the Comex division of the New York Mercantile Exchange, the lowest settlement price since late January.

The February-delivery gold contract fell $31.40, or 2%, to settle at $1,564.10 a troy ounce, the lowest settlement since July and the fifth-consecutive loss. ICE cotton futures briefly surged the exchange-permitted daily limit of 4c, before backing off slightly, as short-covering supported the market near three-week highs. Cotton for March delivery was at 91.68c/lb, up 4.3%.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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