Australian sharemarket closes with losses as miners drop - The Australian

AUSTRALIAN shares closed with sharp losses, with miners by far the worst performers, as Europe's debt woes hit commodity prices.
The benchmark S&P/ASX 200 index ended the day down 1.2 per cent at 4142.30. The Australian dollar traded at US98.92 cents.
Shares came off their worst intraday levels after HSBC's Chinese purchasing managers' index came in at 49 in December, from a final reading of 47.7 in November.
However, markets remain transfixed by Europe’s unfolding debt woes. Overnight, Italy’s borrowing costs rose to a euro-era record at a bond auction, sending the euro to an 11-month low against the US dollar. The euro traded at $US1.2991 in Asian hours, according to FactSet data.
The Italian bond auction underlined that borrowing costs are at near-unsustainable levels for some European governments, even after last week’s key summit.
European financial institutions are seeing high funding costs as well, noted Abdullah Karatash, head of US fixed income credit trading at French brokerage Natixis, and “are in a race to shed assets and reduce financing lines to corporations”.
“This has the unintended consequence of forcing many commodity players that had hedged themselves against future price increases to unwind and sell their positions, thus sharply depressing commodity prices,” he added.
Gold futures skidded nearly 5 per cent overnight, settling down $US76.20 an ounce in New York. Gold extended losses in Asian hours, trading down $US11.40 at $US1575.50 an ounce.
Barclays Capital strategists highlighted the broader risk-averse nature of markets in light of Europe's troubles and said: “Concerns about the outlook for eurozone are leading portfolios away from risk and even growth stories into safe havens.”
Along with cash and the Japanese yen, the US dollar is seen as a relative safe-haven. The US dollar index - which measures the greenback against a basket of six major currencies - traded at 80.527 in Asian hours.
Commodities are priced in US dollars and generally don’t respond well to a stronger greenback. Commodity-sector firms were by far the worst performers in Australia, with miners down 2.3 per cent.
Gold miner Newcrest Mining dropped 2.9 per cent while Perseus Mining fell 5.6 per cent and PanAust shares were down 4.1 per cent. Mineral giant Rio Tinto dropped 2.8 per cent while rival BHP Billiton fell 1.8 per cent.
Banks were also seeing some weakness, with National Australia Bank down 1.6 per cent and Commonwealth Bank shedding 1.5 per cent.

Gold will recover in 2012, says Smith & Williamson's Markova - Citywire

Gold had a historic run this year, with prices peaking above $1,900 in September before sliding below $1,600. As volatility continues to wreak havoc on world markets, fund manager Ani Markova says it looks set to retain its safe-haven status.
Markova, who co-manages the Smith & Williamson Global Gold & Resources fund with Bob Lyon, says gold will continue to grow in value as it’s the only asset governments cannot print. She also thinks undervalued shares in gold miners will rally.
Markova's fund has returned 262% over the past three years to outperform the FTSE gold mines benchmark, which returned 159%, and all other funds in its class.
The fund invests in gold bullion, equities and other precious metals, along with diamonds and rare earth metals. 

Gold bull market not dead: Goldcorp CEO - BNN Business News Network

Dennis Gartman declared the death of the bull market for gold. But the head of Goldcorp remains bullish on bullion, saying the fundamentals that drove the price of gold up are still in place.

CEO Chuck Jeannes tells BNN he tends to be a long-term thinker when it comes to the price of gold. “We’re operating mines that last for many years, so we have to think long term.”

“All of the fundamentals -- the macroeconomic factors -- that have contributed to the gold price bull market over the last ten years remain fully in place,” he says.

Jeannes points to negative interest rates and increasing physical demand in emerging markets and by central banks, as fundamentals that will continue to drive gold. “All of those factors will lend themselves to long-term strength in the bull market.”
On Wednesday gold futures fell more $100 to around $1,563 an ounce, hitting their lowest level since September 26.

Stocks Tumble as Euro, Oil, Gold All Fall - The Street

The euro fell below $1.30 to an 11-month low, amid fears that the credit ratings of some European nations might be downgraded. The dollar index, which measures the dollar against six currencies, was up 0.38%.
A stronger greenback pressured commodities prices. January oil futures finished down $5.19 to $94.95 a barrel, and February gold futures lost $76.20 to $1586.90 an ounce. The benchmark 10-year Treasury was up 21/32, diluting the yield to 1.899%.
Energy and tech stocks were among the worst performers. Twenty-three of the Dow's 30 components were down, led by Caterpillar, Walt Disney, and Chevron. Blue-chip gainers included Merck, General Electric and JPMorgan Chase.
Italy paid a euro-era record yield at a long-term debt auction Wednesday, suggesting that the market isn't convinced that European leaders have taken enough steps to stem the debt crisis. Yields on the five-year bond soared to 6.47%, up from 6.29% at a similar auction a month ago. This follows mixed reaction from investors after European leaders introduced new agreements last week to boost funding to support troubled countries and prevent future debt problems.
Germany's DAX closed down 1.7%, while London's FTSE finished 2.3% lower. Overnight, Japan's Nikkei average settled 0.4% lower, and Hong Kong's Hang Seng index closed down 0.5%.
"Things are still focused on Europe," said Doug Roberts, chief investment strategist with Channel Capital Research. "The market is coming to the conclusion that there's not going to be any change of major importance from the leaders there, at least not until next year.
"As people start to go on vacation, you start seeing futures back off, especially on a day like today when the economic data suggests easing inflation," he added. However, "when people get too negative, that squeezes the shorts so the market essentially alternates between euphoria and despair. We've been repeating this cycle the last month."
Stocks were weak on Tuesday after the Federal Reserve held back on laying any groundwork for quantitative easing in the near future. Although the market didn't expect any policy changes from the central bank, it seemed that investors wanted at least some hint from the Fed that it was ready to boost the economy if it worsened. The Fed also reiterated that "strains in global financial markets continue to pose significant downside risks to the economic outlook."

In U.S. economic news, import prices increased 0.7%, less than the 0.9% economists surveyed by Thomson Reuters had predicted, as food and metal costs declined. The Labor Department also said that export prices rose 0.1%, less than the 0.3% economists expected, after falling 2.1% in the prior month.
U.S. lawmakers in Washington are stuck in a fight over whether to extend aid to the long-term unemployed and a payroll tax cut that expires at the end of the year. The deadlock increases the risk of a tax hike for 160 million Americans and losses of benefits for the unemployed, although market participants say the outcome will likely have limited effect on the stock market. However, investors are tuning in for more news as the New Year draws closer.
In corporate news, Avon Products(AVP), the New York-based beauty products seller, is looking for a new CEO. Current CEO Andrea Jung is being named executive chairman as part of Avon's decision to separate the chairman and CEO roles. The company plans to conduct an external search for a new CEO. The stock rose 5% to $16.96.
First Solar(FSLR) forecast 2011 net sales of $2.8 billion to $2.9 billion, down from its prior guidance of $3 billion to $3.3 billion. The company also lowered its earnings expectations, citing delays of certain projects in its business "due to weather and other factors." Shares closed down 21.4% to $33.45.

Euro slides despite Merkel’s call for ‘patience’ - The Globe and Mail

The euro zone will survive, Ms. Merkel insisted, “if we have the necessary patience and endurance, if we do not let reversals get us down, if we consistently move toward a fiscal and stability union.”
But Ms. Merkel’s comments did nothing to help the euro, which fell to its lowest level since January, or fend off concerns that governments aren’t moving quickly enough to restore confidence that their heavy debt loads are manageable. Italy, one of the world’s most-indebted nations, paid a record high interest rate on a €3-billion ($4-billion) issue of 5-year bonds Monday.
At the heart of the euro zone crisis is the concern that major banks are at risk of failing, partly due to slumping values of their major holdings of government debt. Shares of Commerzbank AG tumbled more than 5 per cent, fuelled by speculation that Germany’s second-largest lender may soon need a state bailout to meet new capital requirements set by Europe’s top banking regulator. Germany already holds a 25-per-cent stake in Commerzbank.
“We are treading across a minefield,” Toronto-Dominion Bank economists Beata Caranci and Martin Schwerdtfeger warned in a research report. “If Europe takes the wrong step, it will set off a global financial crisis.”
The consequences could be more damaging to the global economy than that the financial panic of late 2008, triggered by the collapse of U.S. investment bank Lehman Brothers, the economists said.
“We are heading for this outcome unless euro zone leaders change their current approach and their resistance to bold decisive action,” according to TD.
Some economists and politicians in Europe say the ECB could defuse the debt crisis by launching a massive U.S. Federal Reserve-style campaign of buying sovereign bonds, collectively backstopping euro zone debts. But Germany, financially the strongest among major European nations, has consistently resisted such calls, fearing such a move would lead to rampant inflation.
The leaders summit last week failed to impress investors long seeking a clear plan to quickly deal with Europe’s financial crisis. At the summit, 23 of the 27 EU member countries agreed to a new, long-term fiscal pact. Britain, which isn’t part of the euro zone, opted out, worried that it would mean sacrificing safeguards for its banking industry. Countries must still ratify the agreement over the next few months.
Bundesbank chief Jens Weidmann echoed Ms. Merkel’s reluctance to let the ECB dramatically ramp up bond purchases. He said Germany is uncomfortable with the ECB’s existing modest bond-buying program. Mr. Weidmann pointed out that the ECB’s mandate prohibits unlimited bond buying – essentially, printing money.
But many of the euro zone’s ailing members say it’s time for drastic action. Ireland’s European Affairs Minister Lucinda Creighton told reporters in Paris that the fiscal compact is “desirable” but won’t “save the euro.”
The answer, she said, lies in giving the ECB a green light to do “whatever is necessary.”
Experts worry that the limited backstop offered to date would be too small to cope with a default of a major economy, such as Italy, let alone defaults by several smaller troubled countries.
In trading Wednesday, the value of the euro fell below $1.30 (U.S.) for the first time since January, continuing a wave of selling that began last Friday. Investors continue to worry that credit rating agencies may soon downgrade the debts of one or more euro zone countries and that France could lose its coveted triple-A rating.
Nervous investors forced Italy to pay rates of 6.47 per cent on an issue of five-year bonds, a new high. Rates on German bonds, considered a haven, are also rising.
Bank of Montreal chief economist Sherry Cooper is predicting a “a protracted period of recession and hardship” for Europe. She worried that neither a stronger fiscal union, nor greater ECB support, will ease the crisis.
“Competitiveness is the fundamental problem,” she argued. “It gets far too little attention and is far tougher to deal with.”

Economic optimism grows, but risks remain - USA Today

Four years after the recession officially began in December 2007, economists, businesses and consumers alike have expressed a growing optimism about the recovery in recent weeks. The more confident, if still tempered, outlook is taking shape as the nation seems to be navigating past some big stumbling blocks — such as high gasoline prices — that have impeded growth most of this year. Some recent encouraging signs:

•Vehicle sales in November rose 14% from a year ago to an annual rate of 13.6 million — their best showing since cash-for-clunker incentives drove purchases in August 2009. Economists cite, in part, the recent easing of auto shipment disruptions that followed the Japanese earthquake early this year, as well as a less diffident consumer.

"We're getting some pent-up demand kicking in where people who have not replaced for a long, long time, particularly if they're still working … are deciding it's time," says Nigel Gault, chief U.S. economist at IHS Global Insight.

•The unemployment rate last month fell 0.4 points to 8.6%, lowest since March 2009. Although the decline was partly due to a 315,000 drop in the labor force as discouraged job seekers simply gave up, employment is up an average 321,000 a month since August, according to the Labor Department's household survey. Most encouraging: Much of the hiring appears to be by small businesses, which typically fuel job growth in a recovery.

•The housing market, though still anemic and weighed down by foreclosures, is showing small signs of life. In October, pending home sales jumped 10.4% from September and permits for new single-family homes were highest since May 2010. Builder sentiment also has edged up the last two months and is at an 18-month high.

"We're finally getting back on course," says Chris Rupkey, chief financial economist for Bank of Tokyo-Mitsubishi.

Worries about Europe

Even so, the recovery remains relatively tepid amid lackluster household income growth and still lacks sufficient momentum to generate enough jobs to significantly lower unemployment next year.

And financial turmoil in Europe could still derail the upswing. Stocks have fallen more than 3% this week after Fitch Ratings and Moody's said an agreement at a European summit last week does little to alleviate the massive debt burdens of some countries.

Many economists consider a European recession almost certain. That would hobble U.S. exports and cut economic growth slightly , but only a meltdown that paralyzes global credit markets would push the U.S. back into recession, Gault says.

On the plus side, Democrats and Republicans in Congress now seem committed to continuing this year's Social Security payroll tax cut and extended jobless benefits for the long-term unemployed through 2012, though they still disagree on how to pay for it. A bill passed by the House this week ties the extensions to approval of a controversial oil pipeline — a move Democrats oppose. Failure to extend the tax break would shave about half a point off economic growth next year and reduce employment by 450,000, says Mark Zandi, chief economist of Moody's Analytics.

The more buoyant outlook has lifted stocks. The Standard & Poor's 500 index is up 9.3% since hitting a recent low Oct. 3.

After expanding at an annual rate of just 1% in the first half of this year, the economy grew 2% in the third quarter and is on pace for 3% growth in the fourth quarter. Most economists expect uninspiring growth of about 2% next year — far short of the 3%-plus needed to make a dent in unemployment. Zandi says many businesses will not ramp up hiring significantly because they'll remain uncertain about taxes, federal spending and regulatory reform until after next year's election shuffles a politically divided government.

Some are more bullish. Dean Maki, chief U.S. economist of Barclays Capital, expects the economy to grow about 2.75% next year as it hits a 3% pace by the second half on stronger income growth, higher stocks since 2009 and lower inflation. That should be enough, he says, to generate about 215,000 jobs a month in the last six months of 2012 — more than the 150,000 or so that many economists expect — and cut unemployment to 8% by year's end.

Small businesses accelerate hiring

A big reason for the fresh optimism is a pickup in small-business hiring. In November, small-firm owners increased employment slightly for the first time in five months, according to a survey by the National Federation of Independent Business (NFIB). Small businesses also accounted for more than half of the 206,000 jump in private employment last month reported by payroll processor ADP. Many of those firms are start-ups, says Diane Swonk, chief economist of Mesirow Financial.

"It smells like things are getting better," says Bill Dunkelberg, NFIB's chief economist.

Credit conditions for small businesses have gradually improved in recent months, according to the Federal Reserve. Ami Kassar, CEO of MultiFunding, a loan adviser for small businesses, says the number of start-ups that seek his help has more than doubled over last year, but loans are still very difficult to obtain.

In Evanston, Ill., Mitch Dulin, a serial restaurant entrepreneur, opened Central Street Café in August largely because he wanted to take advantage of low lease rates and sensed the local economy turning up. "I saw things getting better," Dulin says. "If I were to wait a year, the lease would cost me 20% more."

Dulin says he paid cash for the renovation of the space — at a cost of $500,000 to $1 million — and might not have gone ahead with the project if he had needed to get a loan. The 60-seat restaurant, he says, is full for both lunch and dinner, and he turns away more customers than he serves. All 14 full-time workers were previously jobless, Dulin says.

In Mount Kisco, N.Y., Mike Wolfe launched a social-media marketing company after he lost his job as a commercial insurance salesman in February and couldn't find a similar position. It started as a part-time gig in his home, but revenue quadrupled as cost-conscious businesses cut marketing staff and outsourced projects to him. "Next thing I knew I didn't need to find a job anymore — I had this," he says. Wolfe has hired three full-time employees, plans to add five workers next year and is seeking office space.

Nurse Next Door, with 46 franchise locations in Canada, has been planning to expand to the U.S. since its founding 10 years ago, says co-CEO John DeHart. The initiative became more viable the past year partly because the fall in the U.S. dollar made it less expensive, he says.

Each franchisee must spend $125,000, including franchise fee and building costs, to open a location. In August, when the debt-ceiling crisis, U.S. credit-rating downgrade and European turmoil sent the stock market tumbling, several prospective franchisees put their plans on hold. As stocks have been rising recently, inquiries have surged. "We're seeing more potential partners coming back to the table saying, 'We're ready, we have this cash,' " he says.

Two U.S. locations, in Colorado and Oregon, are slated to open early next year, and the company plans to launch 25 by next October — each employing 50 to 100 home health aides and nurses. Therrell Oglesby, 50, is starting a franchise in Fort Collins, Colo., in February. Noting that her investments recently recovered, she says, "I'm able to do it now."

The pickup in business start-ups has been a boon for Jacobs, the Radnor, Pa., commercial real estate broker. His firm has handled 20% more leases the past six months than it did the first half of the year, and he plans to open a second office in Philadelphia. Many of his clients are laid-off executives who are launching their own businesses. Landlords who were holding out for higher rents despite the decline in property values and occupancy rates "finally realize they have to be aggressive on a deal to bring the tenant in," Jacobs says.

Large companies, meanwhile, are experiencing steady growth. Cargo volumes for Union Pacific, the No. 1 freight railroad, are up 3% this year, and CEO Jim Young expects "more of the same" in 2012. "Until you see some meaningful change in employment levels, I think it's going to be very tough to see the economy moving in a strong direction," Young says.

Still, next year the company plans to exceed 2011's record $3.3 billion in capital spending and double the number of locomotives it will buy to 200. Besides girding for growth, the company wants to take advantage of low contractor prices while they last, Young says.

The housing market is ticking up as new households are created. Young adults who have been living with their parents are moving into their own homes amid somewhat stronger job growth. Household formation totaled 1.1 million in the 12 months ending last March, up from 357,000 the previous 12 months.

At the same time, the inventory of new homes has reached a record low, says economist Patrick Newport of IHS Global Insight. "At some point you need to ramp up housing starts in a big way," he says. He expects 675,000 single- and multifamily starts next year, up from 600,000 this year — still less than half the 1.5 million in a normal year — and 960,000 in 2013.

After adding virtually nothing to — or subtracting from — economic growth in recent years, "You're talking about housing finally being a meaningful contributor to the overall economy" in 2012 , Mesirow Financial's Swonk says.

Kosse Maykus, the Fort Worth-area contractor, built 14 homes this year, about double last year's pace. Until recently, customers had been putting off construction of their dream homes in the hopes of getting a better price for their existing houses, Maykus says. "Folks I see today are more realistic," he says.

Consumers are also slightly more confident. In the past three months, Pat Tormey, 64, of Scarsdale, N.Y., has bought a $1,200 high-definition TV, a $129 coffee maker, a $239 cellphone and two pairs of $300 Mephisto shoes. "I think my portfolio is on a gradual slight incline," says Tormey, an adjunct professor of business at local colleges. "You feel a little richer. I have a lot of confidence in the future."

Commodities fall on eurozone fears, weigh on TSX - Canada Financial News

High-level summits, agreements reached to increase bailout packages, limit deficits and form a closer fiscal union — none of it has managed to assuage investors’ fears about the impact the eurozone debt crisis could have on the larger global economy.
Canada’s benchmark stock index declined for a third day on Wednesday as the prices of energy and raw materials dropped sharply. The S&P/TSX composite index dropped 216.90 points, or 1.84%, to 11,543.05. All 10 of the sub-indexes fell, with materials, down 3.29%, and energy, down 2.43%, the most heavily weighted decliners.
The price of crude oil dropped to US$96.95 a barrel, down US$5.19, and gold fell to US$1,586.90 an ounce, a decline of US$76.20.
“It’s very frustrating,” John Carey, a Boston-based money manager at Pioneer Investments, told Bloomberg. “There’s just a hypersensitivity to stories coming out of Europe, ratings, downgrades, what have you. Any indication is seen as something as a basis to trade. That’s continuing to cause anxiety among investors. Nobody sees a way through this at the moment.”
Markets continued to react the previous day’s U.S. Federal Reserve statement that held no indication the central bank was prepared to inject more stimulus into the economy. That had followed European Central Bank president Mario Draghi’s comments that the ECB wasn’t launching a program to buy sovereign debt.
“Meanwhile, the (Munich-based) Ifo (Institute) cutting its 2012 GDP forecast to almost zero growth, eurozone industrial production disappointing, more rumours Italian bond yields continuing to rise at auction and more rumours for a French downgrade circling created a witches’ brew that dragged on sentiment,” wrote CMC analyst Colin Cieszynski in an afternoon note, adding there have been indications European countries may have trouble ratifying last week’s summit deal.
“With the holidays approaching and many markets way down on the year, it appears that many have decided to throw in the towel ahead of the holidays and take their tax losses early. Although this negativity may persist for some time don’t forget that we saw similar action just before the U.S. Thanksgiving holiday last month where extreme pre-holiday jitters and selling ended up setting the stage for a significant rebound.”
The Canadian dollar fell another 50 basis points on Wednesday to 96.19 US cents as commodity prices fell.
“Commodities are taking it on the chin,” Shane Enright, executive director at CIBC World Markets in Toronto, told Bloomberg. “Most of the fallout in Canada has been from that. It’s been a tough few days for gold in particular.”
In the U.S., the Dow Jones industrial average fell 131.46 points, or 1.10%, to 11,823.48, and the Nasdaq composite slipped 39.96 points, or 1.55%, to 2,539.31.
Canada’s junior Venture exchange lost 52.50 points, or 3.60%, to 1,405.93.