US & World Daily Markets Financial Briefing 08-06-2006

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Stocks mixed in early trading

NEW YORK - Stocks were mixed in early trading as rising interest rates around the world and continued fretting about economic growth prospects weigh on the market.
   
In the opening minutes, the Dow Jones industrials were up .72 of a point at 10,931.62, the Nasdaq Composite index dropped 10.02 points to 2,141.59, and the S&P 500 eased .93 of a point to 1,255.22.
   
Stock markets on Wednesday continued their tailspin, taking the Dow industrials losses to over 300 points this week following Federal Reserve Chairman Ben Bernanke's unexpectedly hawkish comments to start the week.
   
Bernanke isn't the only central banker in a hawkish mood, with Korea's central bank unexpectedly raising rates, and the European Central Bank set to make its third hike in seven months. The ECB decision is due at 7:45 a.m. EDT.
   
Stocks in focus

Intel and Advanced Micro Devices may decline after Citigroup cut earnings estimates for the microprocessor makers, citing price war concerns. It also slashed AMD's price target to $33 from $42, though it held onto Intel's price target of $21.
   
Also on the brokerage front, Merrill Lynch downgraded the ratings of Freddie Mac and Fannie Mae, sending both to neutral.
   
Talks among General Motors, Delphi Corp. and their unions to restructure Delphi's workforce have made substantial progress, The Wall Street Journal reported Thursday, citing people familiar with the talks. A deal soon could be reached to offer thousands of Delphi workers lump-sum payments of $70,000 to $140,000 to leave the company and their health-care benefits behind, the report stated.
   
A consortium led by Goldman Sachs pulled out of the bidding for U.K. airports operator BAA, after Grupo Ferrovial SA, which has agreed to buy the operator of London's Heathrow and Gatwick airports, bought more shares.
   
Procter & Gamble said late Wednesday that it still expects its sales to grow between 20 percent and 24 percent in its fiscal fourth quarter while earnings per share should come in between 52 cents and 54 cents.
   
Novellus Systems is expected to rise after the chip equipment maker lifted its sales and shipment forecasts.

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Euro slips to one month low agains dollar after ECB's rate verdict

LONDON - The euro continued to drift lower, hitting a month low against the dollar, after the European Central Bank lifted its benchmark refi rate by a quarter point to 2.75 pct, putting to rest lingering expectations of a bigger increase.
   
So far, ECB chief Jean-Claude Trichet's much awaited news conference after the rate verdict has not yielded up any clear signal that the base rate will rise again in July, leading to further disappointment.
   
ECB chief Jean-Claude Trichet's every word will be scrutinised for indications whether interest rates will rise again next month. Trichet, on the other hand will tread carefully as an overly hawkish stance may well push the euro up rapidly.
       
The euro had already been on the back foot ahead of the rate verdict, amid the dollar's broad based gains on solidifying US rate hike expectations.
   
Falling Asian stock markets and news of the death of the Al-Qaeda chief in Iraq, Abu Musab al-Zarqawi, also helped the dollar's upward momentum.
   
Overnight, Atlanta Federal Reserve president Jack Guynn added to the hawkish tone set by Fed chief Ben Bernanke earlier in the week, pretty much sealing expectations that the benchmark Fed funds rate will rise by a quarter point to 5.25 pct.
   
"It is so much harder to get the genie back in the bottle if we let inflation get away from us," Guynn was reported as saying.
   
BNP Paribas analysts pointed out that the hawkish rhetoric from the Fed has been maintained and even stepped up.
   
"The dollar is continuing to gain support across the board and we would expect this to continue in the near-term, with scope for the dollar to target the 1.2700 support against the euro," they said in a research note.
   
But if the benchmark rate rises to 5.25 pct, it will only get even closer to its peak in this rate hiking cycle and support for the dollar from the interest rate front will likely fade away eventually.
   
Elsewhere, the pound fell further after data this morning revealed that the UK industrial sector suffered an unexpected setback in April after enjoying its best performance in 11 months the previous month, official figures showed today.
   
The office for National Statistics revealed that manufacturing output fell a seasonally-adjusted 0.2 pct in April from the previous month, against an unrevised 0.7 pct rise in March and expectations of a 0.3 pct increase.
   
Sterling has been 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 today 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.
   
The Australian dollar managed to hold its own after a strong jobs report.

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The European Markets at 12.00 BST

London - Leading shares remained significantly lower midday, but off intraday lows, after the Bank of England kept interest rates unchanged at 4.5 pct, and before what is expected to be a fourth consecutive negative session on Wall Street, dealers said.
   
At 12.13 am, the FTSE 100 index fell back 100.1 points to 5,606.2, easing marginally from this morning's low of 5,570.2, while the FTSE 250 dropped 161.8 points to 8,947.1.

Frankfurt - Shares were sharply lower in midday trade after losses on Wall Street overnight and a sell-off in Asia this morning, as the market continues to fret over possible further US rate hikes, with expectations of further US losses this afternoon further dampening sentiment, dealers said.
   
At 11.19 am, the DAX 30 index was 105.86 points or 1.91 pct lower at 5,438.07, having moved between 5,402.82 and 5,478.71 so far this session. The MDAX was at 7,649.53, down 216.37 points or 2.75 pct, while the TecDAX was at 616.58, down 21.55 points or 3.38 pct.

Paris - Shares were sharply lower as a broad sell-off set in after Wall Street turned downwards overnight, as worries about the impact of expected interest rate tightening in the US continued to rattle investor confidence, dealers said.
   
At 1.07 pm, the main CAC-40 index was 93.59 points or 1.94 pct lower at 4,731.04, off a morning low of 4,695.16.

Amsterdam - Shares were broadly lower at midday as investors focused on US futures which point to a lower opening of Wall Street in the absence of positive local news, dealers said.
   
At 12.06 pm, the AEX was 8.54 points or 1.98 pct lower at 423.52 after opening at 422.56 and reaching an earlier low of 421.67.

Brussels - Shares were lower midmorning, impacted by a weak overnight session on Wall Street, with holding groups Nationale a Portefeuille (CNP) and Groupe Bruxelles Lambert (GBL) heading the stocks in negative territory amid a raft of profit-taking, analysts said.
   
At 10.47 am, the Bel 20 was down 67.02 points or 1.87 pct at 3,518.63.

Milan - Share prices were lower in midday trading in across-the-board selling ahead of the outcome of the ECB meeting this afternoon, dealers said.
   
At 11.50 am, the Mibtel was down 1.60 pct to 27,163 points and the S&P/Mib fell 1.50 pct to 35,580.

Madrid - Share prices were trading lower in early afternoon trade, tracking losses across European markets amid investor caution ahead of this afternoon's ECB meeting in Madrid, dealers said.
   
At 12.15 pm, the IBEX-35 index was down 183.1 points at 11,027.2, after trading in a range of 10,985.80-11,083.50, on turnover of 2.01 bln eur.

Zurich - Shares were sharply down midday across-the-board with the SMI falling to its lowest level this year following Wall Street's sell-off overnight and losses in Asia, traders said.
   
At 12.37 pm, the SMI was down 110.83 points or 1.5 pct at 7,438.96, and the SPI was down 91.45 points at 5,784.98.

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Asian shares close mostly lower on US interest rate fears

HONG KONG - Share prices across the Asia-Pacific region closed mostly lower, with Tokyo and Seoul at new six-month lows in response to fears of higher US interest rates.
   
Tokyo shares ended the day down sharply, with both main indices sliding to their lowest closing levels in more than six months, on fears about US interest rates and possible stagflation there, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed down 462.98 points or 3.1 pct at 14,633.03, off a low of 14,496.96. It was the index's lowest closing level since Nov 17, when it ended at 14,169.47.
   
The TOPIX index of all first-section issues closed down 51.32 points or 3.3 pct at 1,482.22, off a low of 1,471.76. It was the index's lowest closing level since Nov 16, when it ended at 1,461.83.
   
Shinko Securities market analyst Yutaka Miura said: "Owing to growing wariness about the risk of stagflation in the US, investors here dare not take fresh positions in equities, even though many stocks now look to be reasonably cheap."
   
Miura added: "Japanese players are also worried about the possibility that US institutional investors may accelerate a capital shift out of emerging economies -- including the Japanese market -- as the continued tumble on Wall Street has significantly reduced their risk-taking ability."
   
Australian shares closed sharply lower, tracking the fall on Wall Street, dealers said.
   
They said the increased chance of a US interest rate hike on June 29, combined with data showing Australia's jobless rate fell to a 30-year low of 4.9 pct, spooked investors and led to the selling of the wider market.
   
The S&P/ASX 200 plunged 118.3 points or 2.35 pct to close at 4,907.2, now well off the May 11 record close of 5,364.5.
   
The loss was the biggest single day fall since the market retreated following the terrorist attacks in the US on Sept 11, 2001.
   
Hong Kong shares were weaker in reaction to Wall St and the Tokyo market, dealers said.
   
At 3.32 pm, the Hang Seng Index was trading at 15,501.31, down 315.24 points or 1.99 pct.
   
Dealers said property stocks were hardest hit and investors were not interested in bottom-fishing such a volatile market.
   
In mainland China, A-shares in Shanghai and Shenzhen closed marginally higher on bargain-hunting after recent sharp losses, dealers said.
   
They said electricity providers and metal firms gained ground.
   
The Shanghai A-share Index added 2.23 points to 1,672.48 on turnover of 30.08 bln yuan and the Shenzhen A-share Index was up 0.28 points at 421.85 on turnover of 16.69 bln yuan.
   
Seoul shares closed at a new six-month low, falling more than three pct, with sentiment undermined by the Bank of Korea's surprise rate hike today and fears of further tightening in the US, dealers said.
   
The BoK said it will raise its benchmark call rate target for June to 4.25 pct from 4.0 pct in a preemptive move to fight inflation resulting from solid economic growth.
   
Bargain hunters picked up oversold stocks but failed to reverse the prevailing selling trend.
   
The KOSPI index closed down 43.71 points or 3.45 pct at 1,223.13, the lowest level seen since Nov 7 when it hit 1,218.47.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Wall Street found some support from lower oil prices following the death of a terrorist leader in Iraq and easing political tensions in Nigeria and Iran. A barrel of light crude fell 79 cents to $70.03 on the New York Mercantile Exchange.

Bonds edged upward, with the yield on the 10-year Treasury note falling to 5.01 percent from 5.02 percent late Wednesday. The U.S. dollar jumped against the Japanese yen, while gold prices tailed off to about $625 an ounce.

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