US & World Daily Markets Financial Briefing 08-11-2006

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Stocks fall in post-election trading

NEW YORK  -  Wall Street retreated in early trading Wednesday after Democrats scored a huge victory in congressional elections, raising questions about how sympathetic the federal government will be toward business.
   
Investors had largely expected Democrats to win control of the House of Representatives for the first time in a dozen years, but still undecided Senate races in Montana and Virginia that left the leadership of that house unclear created the type of uncertainty investors dislike.
   
Still, some pullback in stocks was to be expected after back-to-back sharp gains for the major indexes this week.
   
Companies in sectors as disparate as housing and stem-cell research showed movement Wednesday as investors tried to determine how government might weigh in with regulations or business-friendly measures.
   
In the first hour of trading, the Dow Jones industrial average fell 40.02, or 0.33 percent, to 12,116.75.
   
Broader stock indicators also fell. The Standard & Poor's 500 index was down 5.94, or 0.43 percent, at 1,376.90, and the Nasdaq composite index fell 14.83, or 0.62 percent, to 2,361.05. The Russell 2000 index of smaller companies was down 4.21, or 0.55 percent, at 760.18.
   
Bonds showed little movement, with the yield on the benchmark 10-year Treasury note flat at 4.66 percent from late Tuesday; investors were awaiting the results of the government's auction of 3-year notes later in the day.
   
Stocks in focus
   
Companies in the stem-cell sector showed gains after voters in Missouri narrowly approved a referendum guaranteeing federally approved stem-cell research and treatment will be available in the state. StemCells Inc. rose 33 cents, or 10.8 percent, to $3.40, while Geron Corp. rose 40 cents, or 4.8 percent, to $8.78. Aastrom Biosciences Inc. was up 13 cents, or 8.7 percent, to $1.62.
   
Also, companies in the mortgage business made advances on the notion that Democrats would push plans to broaden access to housing. Fannie Mae was up 50 cents at $60.40, while Freddie Mac was up 42 cents at $70.28.
   
Earnings news was due from a few top names, including Federated Department Stores, Cablevision Systems and Cisco Systems.
   
True Religion Apparel is expected to see a sharp drop after warning it won't meet analyst expectations for earnings or revenue, and UTStarcom may fall after delaying the release of its third-quarter earnings for a review of its stock-option grant practices.
   
Overseas, Airbus owner EADS posted an unexpected loss, while automakers Volkswagen and PSA Peugeot Citroen were mixed after naming new chief executives.

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Dollar recovers from Congressional result losses

LONDON - The dollar regained some lost ground as investors digested news of the Democratic Party's triumphs at the US mid-term elections.
       
More important for the dollar's prospects relate to worries over central bank reserve diversification away from the dollar.
   
The latest reports suggest that Chinese officials are calling for a move away from US assets so that China is less exposed to volatility in the dollar.
   
In addition, the dollar failed to garner the expected boost from last Friday's better than expected US payrolls report for October, adding to speculation the currency is heading lower.
   
"The way in which the dollar reacted to the payrolls report and the euro's inability to stay below 1.2700 usd suggests that a more forceful attack at 1.2785.05/1.2810 support on the dollar index is still likely," said Divyang Shah, global strategist at IDEAglobal.com.
   
On Friday, the Labor Department reported that the unemployment rate in the US fell to a five-year low in October, lowering expectations the US Federal Reserve will not cut borrowing costs any time soon.
   
Elsewhere, the pound was steady before tomorrow's expected interest rate increase from the Bank of England.
   
BoE policymakers kicked off their monthly two-day monetary policy meeting earlier today, with all analysts polled by AFX News predicted a quarter point hike in the key repo rate to a five-year high of 5.0 pct.

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The European Markets at 13.30 GMT

London - UK bluechips were lower at midday, with weak mining stocks and disappointing figures from Standard Life weighing on sentiment, while a confirmed mid-term victory of the Democrats in the House of Representatives for the first time since 1994 is expected to drag Wall Street lower.
   
At 11.40 am, the FTSE 100 index lost 31.7 points to 6,212.3, while the broader FTSE indices were lower as well.

Frankfurt - German shares slid further off yesterday's five-year  high in early afternoon trade as investors continued to take profits leaving all but a handful of  exchange counterparties writing losses on the day.  Any gains made by Henkel were counteracted by losses to Hypo Real Estate's share value which have taken a thrashing since the market opened.
   
At 1.57 pm the DAX was down 0.47 pct or 29.73 points at 6,332.23. The MDAX was flat (down 0.40 point) at 8,815.82 The TecDAX was down 0.69 pct or 4.88 at 700.3. The DAX Futures contract was down 0.56 pct at 6350.5.

Paris - Share prices remained slightly lower at midday, in line with other European markets. At 12.07 pm the CAC-40 index was down 29.92 points or 0.46 pct at 5,408.09. Volume was 1.28 bln eur. On the Matif, November CAC-40 futures were trading at 5,402.0, down 41.5 points or 0.76 pct.

Milan - Share prices were slightly lower at midday on a bout of profit-taking, while Fiat, Tenaris and Parmalat soared. At 12.28 pm, the Mibtel was down 0.21 pct at 30,926 and the S&P/Mib fell 0.33 pct to 40,197.

Madrid - Share prices were lower midday amid profit taking and caution after US Democrats secured a majority in the House of Representatives, with main blue chips and selected defensives on offer. At 12.40 pm, the IBEX-35 index lost 69.0 points to 13,989.3, after trading in a range of 13,986-14,042, on turnover of 3.6 bln eur.

Amsterdam - Shares in Amsterdam fell in midday trade, with lower financials weighing heavily on the index, while Wolters Kluwer rose after strong third-quarter results. At 12.14 pm, the AEX was down 0.34 pct or 1.70 points at 494.98 after opening at 494.74 and reaching an earlier low of 494.37.

Stockholm -  Stockholm shares were slightly lower in late morning trade after indications of a negative start on Wall Street prompted profit taking in the wake of recent gains, with SAS leading the market lower after its third quarter results. At 11.30 am, the OMX Stockholm index was down 0.36 pct at 355.38, while the OMX Stockholm 30 index was down 0.38 pct at 1,104.54. Turnover amounted to 7.704 bln skr.

Switzerland - Shares were broadly lower in thin midday trade on profit-taking following two days of record gains, with investors also cautious ahead of the outcome of US mid-term elections. At 12.15 pm, the SMI was 64.13 points lower at 8,771.50, while the SPI was down 46.95 points at 6,850.27.

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Asian shares close lower as markets strike resistance, rate fears

HONG KONG - Shares across the Asia-Pacific region closed lower on interest rate fears and as markets hit resistance after the record highs of recent days.
   
Tokyo shares finished lower, investors having displayed caution as they await the release of economic indicators such as the machinery orders figures for September, due out on Friday, and of more corporate results for the fiscal first half.
   
Share prices were also pressured by selling in futures and by caution as the markets awaited the special quotations this week for settling futures and options contracts.
   
The blue-chip Nikkei 225 Stock Average closed 177.67 points or 1.08 pct lower at 16,215.74, after touching a low of 16,199.43.
   
The broader TOPIX index of all first-section issues declined 19.18 points or 1.19 pct to 1,597.50, off a low of 1596.76.
       
Australian shares closed down as investor sentiment was weakened by interest rate concerns following the Reserve Bank of Australia's decision to raise its official cash rate by 25 basis points to 6.25 pct.
   
Although the rate hike was widely expected, investors believe the central bank will maintain its tightening bias in its quarterly statement on monetary policy, due Nov 13.
   
The three-day run of record highs which began on Friday was largely ended by investors selling resource stocks, while banking stocks were mixed.
   
The S&P/ASX 200 shed 32.4 points or 0.59 pct to close at the day's low of 5,459.2, falling below yesterday's record close of 5,491.6. The key index closed below the day's high of 5,493.9.
   
Hong Kong shares were weaker in afternoon trade on profit-taking after gaining for six straight trading days. At 3.29 pm the Hang Seng Index was down by 139.07 points or 0.73 pct at 18,800.24.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on profit-taking and worries over more fund-raising plans to be announced. Banks and blue chips were among the major losers.
   
The Shanghai A-share Index slid 24.05 points or 1.21 pct to 1,961.28 and the Shenzhen A-share Index was down 3.08 points or 0.66 pct at 465.25.
   
Seoul shares closed lower after investors turned cautious ahead of the Bank of Korea's rate decision and the expiry of options contracts tomorrow.
   
Many analysts expected the central bank not to move this time but concerns suddenly surfaced in recent days due to reports of rising property prices in Seoul and nearby areas. The KOSPI index closed down 7.37 points or 0.53 pct at 1,380.07, after moving between 1,379.34 and 1,393.51.

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Gold little changed in cautious reaction to dollar's falls; oil prices climb

LONDON - Gold was little changed with the dollar's falls failing to spark off much of a rally given the metal's recent gains.
   
At 11.33 am, gold was down 1.20 usd at 626.50 usd/oz while silver was down 4.5 cents at 12.63 usd/oz.
   
James Moore at theBulliondesk.com said gold faces strong resistance at the 630 usd level but that the metal is likely to clear this hurdle. "The outlook both short and long-term remains bullish for the yellow metal following last week's technical break-out," he said.
   
World oil prices rose as traders awaited the latest weekly update on crude inventories in the US, the world's biggest energy-consuming nation.
   
Meanwhile, analysts played down talk that the US Congressional election would have a pronounced impact on the crude market, and particularly on American foreign policy in the oil-rich Middle East.
   
Light, sweet crude rose 32 cents to $59.25 in premarket electronic trading on the New York Mercantile Exchange.
   
In London, Brent North Sea crude for December delivery gained 15 cents to 58.63 usd per barrel in electronic trading.
   
Crude futures dived yesterday by more than 1 usd on forecasts of milder weather and rising US crude inventories.
   
"The market today is reacting ahead of the inventory data," said Tetsu Emori, chief commodities strategist for Mitsui Bussan Futures in Tokyo.
   
Analysts expected the US Department of Energy (DoE) report to show that US crude oil reserves grew by 750,000 barrels during the week ending Nov 3.
   
Stocks of distillate products, including heating oil, were expected to fall by 800,000 barrels. But warmer US weather should allow them to bounce back in the coming weeks, traders said.
   

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