US & World Daily Markets Financial Briefing 07-06-2006

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Stocks creep higher following losses

NEW YORK - Stocks edged higher in opening trading Wednesday following two days of losses.
   
With little in the way of new economic data expected for the session, traders paused after taking more than 245 points off the Dow Jones industrial average in the previous two sessions and pushing the Nasdaq composite index into the red for the year.
   
Falling oil prices, pushed lower by hopes Iran might cooperate with world powers to curb its nuclear program, cheered Wall Street. The only economic data of the morning, the Mortgage Bankers Association's home purchase index, had little effect, as it was virtually unchanged for the week ended June 2.
   
European markets were trading higher after their Tuesday swoon, but Asian markets continued to tremble. The Shanghai Composite Index dropped 5.33 percent, its biggest fall in more than four years, on fears that new share issues may outstrip demand.

Japan's Nikkei stock average fell to its lowest close in six months on concerns over U.S. interest rates and the arrest this week of a high-profile fund manager.
   
In the first hour of trading, the Dow Jones industrial average rose 19.13, or 0.17 percent, to 11,021.27.
   
Broader stock indicators were also higher. The Standard & Poor's 500 index rose 0.76, or 0.06 percent, to 1,264.61, and the Nasdaq composite index rose 1.66, or 0.08 percent, to 2,164.44.

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Dollar drifts higher as hawkish US rhetoric continues

LONDON - The dollar continued to drift higher amid solidifying expectations of a US rate hike in June after a stream of hawkish comments from US rate setters.
   
Overnight comments from rate setters Susan Bies and William Poole have been key in continuing the hawkish tone set by Fed chief Ben Bernanke earlier in the week, analysts said.
   
"The probability of a quarter-point hike in June is up at 85 pct. It looks like it will reach 100 pct if the focus on inflation continues," said Marios Maratheftis at Standard Chartered.
   
The Fed will deliver its rate verdict on June 29. It has raised the benchmark fed funds rate 16 straight times, taking the rate from as low as 1.00 pct mid-2004 to 5.00 pct where it stands now.
   
It is more difficult to envisage greater gains for the dollar, however, said Maratheftis.
   
After all a hike to 5.25 pct will take the benchmark rate even closer to its peak in this rate hiking cycle. Additionally, all the leading indicators in the US suggest that the economy is coming off the boil, he added. 
   
Today, focus will fall on comments from the Fed's Mark Olson, a voting member on the FOMC this year.
   
Elsewhere, the euro held steady at lower levels against dollar but was slightly up on the pound.
   
Data out today backed the need for higher rates in the euro zone but had little market impact given the level of expectations already priced in.
   
Euro-zone retail sales rose by 1.4 pct in April from March for a 2.8 pct year-on-year gain, official data showed. The figures are well above expectations for more moderate gains of 0.9 and 2.4 pct respectively and continue to suggest a need for higher interest rates.
   
The momentum is building for a hefty rate hike from the European Central Bank tomorrow. Markets believe a quarter-point hike to 2.75 pct is in the bag. At the same time, the odds are shortening for a half-point hike to 3.00 pct.
   
Analysts widely believe the central bank will prefer quarter-point increments in order to ward off rapid gains in the euro's value.
   
The pound, meanwhile, stayed on the back foot amid receding hopes of a UK rate hike. UK data over the past few weeks have been too mixed to warrant a rate increase.
   
The Bank of England delivers a rate verdict tomorrow but no change is predicted for the tenth month in a row. The benchmark rate has stayed stuck at 4.50 pct since August last year.

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Asian shares close down, Tokyo at six-month low

HONG KONG - Shares across the Asia-Pacific region closed lower following Wall Street's slide and fears that US interest rates will rise, dealers said.
   
Tokyo share prices ended sharply down, with the Nikkei 225 dipping to a more than six-month low.
   
The latest gloom over rates was sparked by US Federal Reserve chairman Ben Bernanke who said Monday that core inflation in the US was near the central bank's tolerance level and could warrant further rate tightening.
   
The Nikkei 225 Stock Average closed down 288.85 points or 1.9 pct at 15,096.01. It was the lowest finish since Nov 30, 2005 when it settled at 14,872.15.
   
The TOPIX index of all first-section issues fell 33.76 points or 2.15 pct to 1,533.54.
   
"Bernanke sent shockwaves through Wall St, and Asian markets have also been hit as it seems he is willing to hike interest rates at the (potential) cost of an economic slowdown," said Ryuta Otsuka, a strategist at Toyo Securities.
   
Australian share prices finished down in response to Wall Street's fall and lower base and precious metal prices hitting resource stocks, dealers said.
   
But they said the market was proving resilient, with stocks such as some major banks finding support after the Reserve Bank of Australia left official interest rates unchanged at 5.75 pct.
   
The S&P/ASX 200 fell 10.6 points or 0.21 pct to close at 5,025.5, retreating from the May 11 record close of 5,364.5.
   
Hong Kong shares were trading lower in afternoon trade, in response to Wall Street and a lack of any positive local news to encourage buying, dealers said.
   
At 3:30 pm the Hang Seng Index was trading at 15.795.57, down 177.54 or 1.11 pct, with dealers saying profit-taking in rate-sensitive property stocks had dragged the market lower.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on worries over liquidity pressure and possible credit-tightening measures, with heavyweight steelmakers and banks hit hard, dealers said.
   
The Shanghai A-share Index slipped 94.59 points to 1,670.25 on turnover of 36.99 bln yuan and the Shenzhen A-share Index was down 26.32 points at 421.57 on turn over of 19.64 bln yuan.
   
Seoul shares fell sharply in response to Wall St and weaker markets across Asia, dealers said.
   
The South Korean market was closed yesterday for a national holiday so had to catch up on two sessions' trade and foreign and retail investors sold aggressively, they added.
   
The KOSPI index closed down 34.78 points or 2.67 pct at 1,266.84, the lowest level since Nov 22 when it hit 1,244.50.
   
Dealers expect the market to fall further, perhaps down to 1,250 points, with a considerable number of options contracts awaiting settlement tomorrow.

Asian Bourse Round-Up

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London shares firmer off highs midafternoon

At 2.52 pm, the FTSE 100 index was 14.4 points higher at 5,684.2, below the midday peak of 5,701.2 having rallied from an early low of 5,638.5. All the broader FTSE indices were higher aside from the techMARK 100. Volume was fair, with 1.712 mln shares changing hands in 244,522 deals swollen by a number of placings.

Cable & Wireless shares topped the FTSE 100 leaders board midafternoon, adding 3-1/4 pence at 106, in spite of expectations the stock will be demoted from the FTSE 100 index after today's quarterly review, helped by vague bid speculation and hopes for its broadband offering, Bulldog.
   
Shares in BSkyB also saw good support midafternoon, adding 14-1/2 pence at 546-1/2 boosted by yesterday's news of the solid launch of rival Carphone Warehouse's broadband and landline package.
   
Among other media issues, blue chip publishers Reed Elsevier and Pearson both rallied today, up 16 pence at 538 and 11-1/2 pence at 724 respectively, helped by a recovery by the US dollar.
   
Reed Elsevier was also aided by reports of a positive presentation at a Merrill Lynch media conference.
   
Elsewhere banking issues also recovered from a recent sell-off, with Lloyds TSB taking on 9 pence at 519, HSBC ahead 12 pence at 936, and Barclays up 8 pence at 613.
   
Standard Chartered shares, meanwhile, added 15 pence at 1,281 as talk of an 18.49 mln share placing by Morgan Stanley at 1,250 pence per share revived bid hopes for the Asian-oriented bank.
   
On the corporate news front, shares in Cadbury Schweppes climbed 8-1/2 pence higher to 511-1/2 following the publication of a reassuringly in-line trading update from the blue chip firm. The soft drinks and confectionery group said it expects to deliver good revenue growth in 2006, towards the upper end of its target of 3-5 pct.
   
In response, Merrill Lynch reiterated its 'buy' advice and said the stock represents good value after a 15 pct sell off in the last couple of months.
   
And broker comment gave some cheer to Diageo shares, 14-1/2 pence higher at 908-1/2 with the drinks giant upgraded to 'buy' from 'hold' by Deutsche Bank.
   
On the downside, PartyGaming remained the main blue chip casualty today, losing 5-1/4 pence at 117 as dealers noted talk that Dresdner Kleinwort Wasserstein has scaled back a book-built placing in the stock to 200 mln shares from an initial level of 350 mln.
   
Traders pointed out that the placing, thought to be being undertaken on behalf of the four founders of the on-line gaming group, has reportedly been priced at 116 pence per share, the float price for Partygaming shares back in 2005 and below a previously indicated level of 119-120 pence for the share sale.

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Gold sharply lower on rising dollar, inflation worries

LONDON - Gold prices were sharply lower, in line with losses across commodities, as the dollar continued to benefit from increased speculation that the Fed may raise interest rates in June.
   
At 2.25 pm, spot gold was quoted at 618.75-619.75 usd an ounce against 629.70 in New York yesterday. Prices hit a low of 617.40 usd at one point, breaking key support at around 620 usd.
   
"Commodities are all following the dollar at the moment. We have speculation of rate hikes in the US and Europe so you see a short-term switch into cash from metals," said TheBullionDesk analyst James Moore.
   
Yesterday, comments from US rate setters Susan Bies and William Poole warning about the possibility of a pick-up in inflation continued the hawkish tone set by Fed chief Ben Bernanke earlier in the week.
   
The Fed has raised the benchmark fed funds rate 16 straight times since 2004, and market players are now starting to price in yet another rate hike on June 29.
   
Moore said while he still believes the upward trend seen in commodities will continue in the long term, gold could head lower in the days ahead considering it broke through key support levels today.
   
"We went below 620 usd in gold, that's a key chart number so there's scope towards a low of 585-600 probably over the next couple of days obviously depending on Iran and the ECB interest rate decision tomorrow," he said.
   
Early signs of easing tensions between Iran and the West also appeared to appease the market.
   
Iran, currently engaged in a dispute with Western nations over its nuclear programme, said earlier it will at least consider a package of incentives offered by world powers for it to halt uranium enrichment.
   
"Coming out of Iran there seems to be some positive developments. The Iranians indicated they would seriously consider the proposal...so it has had a calming effect on the market," said Victor Shum, an analyst at Purvin and Gertz.
   
In other precious metals, spot silver was quoted at 11.48-11.58 usd an ounce, down from 11.87 usd in New York yesterday.
   
"For the short-term silver will remain at the mercy of the dollar and oil markets," said Moore at TheBullionDesk.
   
In base metals, copper for delivery in 3 months touched a 4-week low on the London Metals Exchange, losing 3.81 pct to 7330-7340 usd a tonne at 12.50 pm, while 3-months aluminium high grade fell 2.14 pct to 2517-2518 usd a tonne.
   
Nickel fell 1.18 pct to 21000-21100 usd a tonne, zinc was down 1.96 pct to 3460-3461 usd, lead was 1.34 pct lower at 1034-1038 usd while tin lost 3.07 pct to 7900-7920 usd a tonne.

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