US & World Daily Markets Financial Briefing 07-03-2006

U.S. stocks mixed on interest-rate fears, TI sales view

NEW YORK - U.S. stocks turned mixed Tuesday as long-term interest rates backed off prior-session highs, but a disappointing sales outlook from Texas Instruments weighed on the technology sector.
   
The Dow Jones Industrial Average was off a morning low of 10,933, up 20 points at 10,978.
   
The Nasdaq Composite Index fell 7 points to 2,279 while the S&P 500 Index dropped 1.3 points to 1,276.90.
   
A steadier bond market following Monday's rout offered some comfort to investors, although the market remains concerned about the impact of higher rates on economic growth and corporate profits.
   
"The market is being held hostage by higher yields," said Peter Cardillo, chief market analyst at S.W. Bach, referring to the rise in bond yields. "But I think they are somewhat over extended at this time."
   
Cardillo said a report on fourth-quarter productivity showing a rise in unit labor costs only stoked concern rates will have to rise further to keep inflation at bay.
  
On Monday, a Treasury market rout sent the yield on the benchmark 10-year note to its strongest level since June 2004, the month during which the Federal Reserve began putting in place its program of steady, quarter-point rate hikes.
   
Concerns about rates were intensified after St. Louis Federal Reserve President William Poole, widely considered to be hawkish on inflation, said the Fed may have to "step a little harder of the brake."
   
And now for the first time, financial futures markets are pricing in a small chance that the Federal Open Market Committee, the Fed's interest-rate setting body, may raise its short-term interest rate by a half-percentage point at its March 28 meeting. The Fed's key Fed funds rate currently stands at 4.5%.
   
There was little to cheer on the economic front. The Labor Department reported that productivity in the fourth quarter fell at a revised annual rate of 0.5%, only slightly improved from the 0.6% decrease estimated a month ago.

The fourth quarter saw the first decline in U.S. nonfarm productivity since the first quarter of 2001, when the nation's last recession began.
   
Unit labor costs, a key gauge of inflationary pressures, increased 3.3% annualized, revised down from 3.5% earlier. It was the biggest increase in unit labor costs in a year.
   
On the broader market for equities, decliners outpaced advancers by 3 to 1 on the New York Stock Exchange, and by more than 2 to 1 on the Nasdaq.

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Shares of Texas Instruments were 4.2% lower at $30.97 after the world's biggest supplier of chips for mobile phones gave a broadly in-line profit and sales outlook, disappointing some investors who hoped it would raise its financial targets.
   
Last week, Intel Corp. , the world's biggest chip maker, unnerved the market when it lowered its revenue forecast. Intel shares were last down 26 cents at $20.04.
   
Qwest Communications International fell 4.5% to $6.53 after Citigroup cut its rating on the stock to sell from hold, citing possible negative fallout from AT&T Corp.'s new agreement to buy BellSouth Corp.
   
Citigroup also cut BellSouth to hold from buy and reiterated a buy rating for Alltel Corp. 
   
Legg Mason was in the spotlight after financial-services giant Citigroup said it plans to sell 8 million shares of the Baltimore-based mutual-funds company. Legg Mason's stock was down 1.6% at $130.15.

Forex

Canadian dollar falls as BoC issues less hawkish statement

LONDON - The Canadian dollar was lower after the Bank of Canada hiked interest rates as expected, but issued a slightly less hawkish statement.
   
The BoC raised its overnight rate by a quarter point to 3.75 pct, the fifth hike in a row, and said "some modest further increase" in interest rates "may be required".
   
At 2.52 pm GMT, the US dollar/Canadian dollar rate rose to 1.1469, up from 1.1429 just before the rate announcement. Against the euro, the Canadian currency fell to 0.7323 eur from 0.7347 previously.
   
The rate hike was "both priced in and widely expected" by the market, but the statement differed slightly from the last Monetary Policy Report which said some modest further increase in rates "will" be required, said CALYON analyst Mitul Kotecha.
   
"The statement was taken negatively by the Canadian dollar and notably the currency already started the week on a softer footing as profits are taken on
its recent sharp appreciation," he said.
   
The BoC said both Canadian economic growth and inflation had evolved roughly
in line with its forecasts.
   
Crucially, however, it noted that the Canadian dollar "has recently moved above the range that had been assumed in the (January Monetary Policy Report) Update".
   
The Canadian dollar hit 14-year highs against its US counterpart last week when the usd/cad rate fell as low as 1.1297.

The US dollar was higher after Poole's hawkish remarks. The euro fell 0.9% to $1.1898 as the dollar rose 0.2% to 117.89 yen.

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London - Leading shares were sharply lower at midday ahead of an expected weaker start to US trading with mining issues leading the blue chip decliners while negative broker comment hit the UK property sector, dealers said.
   
At 12.00 noon, the FTSE 100 was down 53.9 points at 5,843.9, mirroring the negative wider market sentiment. 

Frankfurt - Shares were lower in midday trade following losses on Wall Street overnight and as US stock futures pointed to a further drop there this afternoon, though MDAX-listed Stada soared on its fourth-quarter results, outlook and a raft of broker upgrades, dealers said.
   
At 12.04 pm, the DAX 30 index was 42.71 points or 0.74 pct lower at 5,711.35, having moved between 5,698.74-5,732.54 so far this session. The MDAX was at 8,345.38, down 54.25 points or 0.65 pct, while the TecDAX was at 719.51, down 21.02 points or 2.84 pct.
   
Paris - Paris shares were trading lower at midday from profit-taking as the market consolidated after the recent prolonged period above the 5,000 threshold, amid raw materials price rises combined with yesterday's decline on Wall Street, dealers said.
   
At 1.22 pm, the benchmark CAC-40 index was down 31.70 eur or 0.63 pct to 4,979.02.

Milan - Share prices were lower at midday trades, tracking overnight losses on Wall Street, while Generali continued to be supported by a well-received business plan, dealers said.
   
At 12.21 pm, the Mibtel index fell 0.70 pct to 28,786 points and the S&P/Mib was down 0.81 pct at 37,417.

Madrid - Share prices were lower in thin midday trade, amid market consolidation in line with the rest of Europe, with losses by SCH and Iberia weighing heavily while Endesa was still in favour, dealers said.
   
At 11.54 am, the IBEX-35 index shed 118.8 to 11,640.2, after trading in a range of 11,635-11,714, on turnover of 990 mln eur.

Stockholm - Shares were lower in midday trade pressured by indications that the Nasdaq will open lower on speculation that the Federal Reserve will continue hiking interest rates, brokers said.
   
At 12.40 pm, the OMX Stockholm index was down 0.83 pct at 321.60 and the OMX Stockholm 30 down 0.93 pct at 1,005.38. Turnover was 11.100 bln skr.

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Asian shares close lower, Tokyo pressured by Wall Street retreat

HONG KONG - Share prices across the Asia-Pacific region closed lower with Tokyo pressured by a Wall Street retreat and investors reluctant to take new positions before the Bank of Japan's two-day policy board meeting tomorrow, dealers said. 

Japanese market sentiment was also dented by Softbank falling sharply after Standard & Poor's placed the company on CreditWatch with negative implications because of worries about the financial burden of its possible acquisition of Vodafone's Japanese unit.
   
The Nikkei 225 Stock Average closed down 175.14 points or 1.1 pct at 15,726.02, giving up more than half of the gains it made yesterday. It touched a low of 15,678.12.
   
The broader TOPIX index of all first-section issues shed 8.59 points or 0.5 pct at 1,617.87, off a low of 1,612.91.
   
SMBC Friend Securities senior strategist Toshihiko Matsuno said market players opted to pocket profits after the benchmark Nikkei 225 index added 1.5 pct yesterday, and because of a pullback on Wall Street.
   
"Investors turned more cautious as expectations that the Bank of Japan will vote to scrap its super-easy monetary policy at the two-day meeting were slowly diminishing," said Hirohichi Nishi, equities chief at Nikko Cordial Corp.
   
"This is because [the] prime minister yesterday warned the central bank to be prudent in deciding the timing of the policy shift," he said.
   
Even so, some analysts believe the central bank will, indeed, change its policy this week.
   
Share prices in Australia also closed lower following Wall Street's lead, where the possibility of further interest rate rises worried investors, dealers said.
   
They said diversified resource group BHP Billiton dropped after an overnight sell-off in metal and oil prices, which also hit global miner Rio Tinto.
   
BHP Billiton shares lost 0.51 aud or 2.08 pct to finish at 24.00 aud and Rio Tinto dropped 1.25 or 1.76 pct at 69.60.
   
The S&P/ASX 200 lost 24.2 points or 0.49 pct to close at 4,879.7.
   
CommSec equities analyst Donahue D'Souza said the market showed resilience
after facing headwinds from the start of trading because of falls in metal and oil prices and a negative lead from Wall Street.
   
"There has been some defensive buying today although the banks came off but that's after a fairly strong performance," D'Souza said.
   
He said retreats in the resources sector appeared to have been limited by the Australian dollar also trading lower, helping to stabilize commodity prices in Australian dollar.
   
Share prices in Hong Kong closed sharply lower as property stocks were hit by renewed worries over interest rates after US government bond yields rose to multi-year highs overnight, dealers said.
   
They said falls on Wall Street and the Japanese market also weighed on sentiment.
   
HSBC led the market to a higher open after its strong 2005 results but investors soon began focusing on unit Hang Seng Bank's weaker earnings.
   
At 3.53 pm, the Hang Seng Index was down 241.57 points or 1.53 pct at 15570.26.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower on institutional selling amid growing caution with blue chips and pharmaceutical
issues under pressure, dealers said.
   
The Shanghai A-share Index fell 29.95 points to 1,321.88 on turnover of 10.38 bln yuan and the Shenzhen A-share Index was down 7.64 points at 315.86 on turnover of 5.77 bln yuan.
   
Share prices in South Korea also closed sharply lower as foreign investors dumped chipmakers and other bluechips amid growing concerns of a global rate
tightening, dealers said.
   
Samsung Electronics and Hynix Semiconductor tumbled on rumors that international orders for flash memory chips had dropped sharply, with Hynix
taking an additional hit from a report that US-based Sun Microsystems had filed a suit against the chipmaker for alleged price fixing, they added.
   
The KOSPI index closed down 28.09 points or 2.09 pct at 1,316.67, off a high of 1,336.47 and a low of 1,314.27.
   
"The market fell to another nose-dive on foreign investors' selling of both spots and futures," Samsung Securities analyst Oh Hyun-Seok said.
   
He noted that investor sentiment has been chilled by a combination of fears of global tightening and concerns over IT companies' losing profit momentum.
   
Although the Bank of Korea is expected to freeze its call rate target at four pct this Thursday, there are talks of possible tightening in Japan and Europe, he said.

Asian Bourse Round-Up

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On the bond market, long-term Treasury prices traded little changed, after Monday's sharp pullback. The benchmark 10-year note last was unchanged at 98 1/32 with a yield of 4.75%, helping set the tone for the expected declines in the stock market.

Gold futures hovered around the flat line after falling sharply on Monday when safe-haven interest was reduced by expectations that the international community may be able to reach a compromise with Iran over its nuclear activities.

The April futures contract was last down $1 at $555.80.

Crude futures traded little changed. The benchmark April contract was down 11 cents at $62.30 in New York trading.

Precious Metals Summary - London, 1530 GMT

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