US & World Daily Markets Financial Briefing 09-10-2006

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Stocks dip on Korean fears, higher oil

NEW YORK -  Stocks fell in early trading Monday after North Korea announced it had set off an atomic weapon underground. Reports of an OPEC production cut sent oil prices higher.
   
Monday's early decline comes after the Dow Jones industrial average set new records for three straight sessions last week, leaving investors divided about whether stocks are at the beginning of a rally or the top of their prices. With earnings season set to begin this week, investors will be watching closely for any disappointments.
   
International jitters spread to Wall Street. The United Nations Security Council is expected to discuss the North Korean situation today.
   
In the first hour of trading, the Dow Jones industrial average fell 11.45, or 0.10 percent, to 11,838.76.
   
Broader stock indicators were slightly lower. The Standard & Poor's 500 index fell 1.17, or 0.09 percent, to 1,348.41, and the Nasdaq composite index fell 2.37, or 0.10 percent, to 2,297.62. The Russell 2000 index of smaller companies was down 1.98, or 0.27 percent, to 737.83.
   
The U.S. bond market was closed for Columbus Day. Ten-year Treasuries closed Friday with a yield of 4.70 percent. Oil futures rose, with a barrel of light crude quoted at $60.48, up 72 cents, in electronic pre-opening trading on the New York Mercantile Exchange.

Stocks in Focus

PNC Financial Services Group Inc. of Pittsburgh, seeking to extend its core franchise in the mid-Atlantic states, agreed to pay $47.24 a share, or $6 billion, for Mercantile Bankshares Inc. of Baltimore. It's offering 0.4184 of its own shares and $16.45 cash for each Mercantile share. The offer is at a 28 percent premium to Friday's close.
   
Citigroup CEO Chuck Prince said the bank is considering acquisitions of banks in Taiwan, Turkey, Central America, China and Western Europe as part of a plan to boost the proportion of earnings coming from outside the U.S. to 60 percent from 45 percent, according to an interview published Monday in the Financial Times.
   
Cablevision Systems may get a lift after The Wall Street Journal and The New York Post reported that the Dolan family offered to buy out minority shareholders in an offer valuing the cable systems operator at $7.9 billion, or $27 a share.

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Outside of M&A news, Johnson & Johnson said the U.S. Food and Drug Administration has approved Risperdal for the treatment of irritability associated with autistic disorder in children and adolescents aged 5 to 16 years. Also, the company said vice-chairman and chief financial officer, Robert Darretta, will retire at the start of next year
   
Shire rose in London trade, and New River Pharmaceuticals is expected to climb in New York, after the companies said late Friday that the FDA gave tentative approval to an attention-deficit disorder drug.
   
Also on the drug approval front, Sepracor said late Friday the FDA approved the Brovana inhalation solution for those with chronic obstructive pulmonary disease.
   
New York Stock Exchange specialists could see pressure after Van Der Moolen warned of a third-quarter loss on sharply lower revenue. Dutch-listed Van Der Moolen shares declined 8.9 percent.

Forex

Dollar steady; yen under pressure after N Korean nuclear test

The dollar steadied at slightly higher levels while the yen was on the back foot in the aftermath of North Korea's inaugural nuclear test in defiance of the international community.
   
While flows were not big, they appear to be favouring the dollar. On the other hand, activity was thin what with Japan, the US and Canada all observing public holidays.
 
In the wake of the nuclear test, the dollar hit an eight-month high against the yen, and appears to be heading higher.
       
The headline job creation figure for September came in well under predictions but data for previous months were adjusted higher while the jobless rate fell back.
   
While the week got off to a slow start data wise, things will hot up later on when some key US data are released. US trade and retail sales numbers are due Thursday and Friday respectively. Wednesday will bring the minutes of the Fed's rate setting deliberations in September when the base rate was left unchanged at 5.25 pct.
     
The yen was on the back foot after the North Korean nuclear test. The big question is whether how far stability in the region will be compromised by North Korea's nuclear aspirations. Continued uncertainty will weigh on the yen and in particular the South Korean won.
   
Elsewhere, the pound was down slightly after news of falling producer prices.
   
The office for National Statistics revealed that producers' input prices on a seasonally-adjusted basis fell by 1.8 pct in September from the previous month. The decline was the second in a row and the largest since December 2004 when input prices fell 2.3 pct. The drop was due to lower oil prices.
   

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The European Markets at 11.30 GMT

London - UK blue chips climbed to fresh 5-month highs at midday, lifted by firm oil and mining stocks as North Korea's claims of a successful nuclear test heightened geopolitical concerns and sent commodity prices sharply higher.
   
By 12.05 pm, the FTSE 100 index was 38.5 points firmer at 6,039.7, its highest level since early May, while the broader indices remained mixed.

Paris - Share prices were slightly lower in midday trading as investors took a cautious stance in the wake of a nuclear arms test by North Korea, with an uptick in oil prices also weighing on equities.
   
At 12.06 pm, the CAC-40 index was down 0.06 points at 5,282.00, on volume of 1.1 bln eur. On the Matif, October CAC-40 futures had edged up 1.5 points to 5,288.5.

Frankfurt - German shares were lower in midmorning trade amid a cautious mood as oil prices rebounded following news of a nuclear test in North Korea, and with weakness in Volkswagen shares offsetting gains in MAN AG as the latter reportedly plans to drop its Scania bid in favour of 3-way talks with VW.
   
At 11.11 am, the DAX 30 shed 23.48 points at 6,062.1, while the MDAX lost 45.1 points at 8,499.49. The TecDax bucked the wider trend, adding 0.48 points at 653.2.

Amsterdam - Share prices turned up midday as worries over North Korea's nuclear test today were tempered by higher oil prices. At 1.03 pm, the AEX index was up 0.05 pct or 0.26 point at 486.47, after opening at 484.29 and trading in the range of 484.08-486.48.

Milan - Share prices were broadly flat at midday, tracking European trends, with Fastweb among the leading gainers after it agreed an expanded content deal with News Corp unit Sky Italia. At 12 noon, the Mibtel index was up 0.05 pct to 29,720 points, and the S&P/Mib down 0.04 pct to 38,939.

Madrid - Shares were slightly lower midday as US futures pointed to a weak start on Wall Street, amid geopolitical concerns after North Korea said it has completed a successful nuclear test. At 12.07 pm, the IBEX-35 index fell 5.4 points to 13,151.1, after trading in a range of 13,097-13,161, on turnover of 1.1 bln eur.

Zurich - Swiss shares traded flat in thin afternoon trade as overnight news that North Korea successfully tested nuclear missiles underground sent jitters across Asian and European markets. At 12.45 pm, the Swiss Market Index was 13.35 points higher at 8,534.59, and the Swiss Performance Index was 6.15 points down at 6,642.73.

Stockholm - Shares remained in slightly positive territory in midday trade, up a touch from morning levels, with TeliaSonera and the miners leading the market higher. At 12.10 pm, the OMX Stockholm index was up 0.30 pct at 341.60 points, while the OMX Stockholm 30 index was up 0.54 pct at 1,065.57.

Helsinki - Shares were slightly higher in light early afternoon trade, led by Neste Oil amid firmer oil prices and TeliaSonera, on news of a stake buy by a private equity fund. At 1.14 pm, the OMX Helsinki 25 was 0.47 pct higher at 2,619.95 and the OMX Helsinki was up 0.45 pct to 8,874.73 on 156 mln eur turnover.

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Asian shares close mostly lower on NKorea nuclear test

HONG KONG - Shares across the Asia-Pacific region closed mostly lower after North Korea conducted a nuclear test, with large falls in South Korea, Hong Kong and Singapore. The Tokyo market was closed for a holiday.
   
Seoul shares closed sharply lower, with investors panicked by news of North Korea's nuclear test, dealers said.
   
North Korea's official announcement that it conducted an underground nuclear test this morning set off massive selling across the board by retail investors and institutions, bringing the KOSPI index tumbling to near 1,300 points, they added.
   
The KOSPI index closed down 32.60 points or 2.41 pct at 1,319.40, off a low of 1,303.62 and a high of 1,365.01.
   
The won also tumbled against the dollar, losing 1.56 pct to finish at 963.9.     "The fear (of a test) appears to have become a reality and that's really bad news for those holding won-denominated assets, including stocks," Korea Investment & Securities analyst Kim Hak-Gyun said.
   
Australian shares closed lower as investor sentiment was shaken by North Korea's nuclear test. Domestic interest rate concerns added to the selling ahead of a potentially hawkish speech on Wednesday by the Reserve Bank of Australia
governor, Glenn Stevens.
   
The S&P/ASX 200 fell 21.6 points or 0.41 pct to close at 5,199.1, above the day's low of 5,173.1 and below the high of 5,231.2.
   
Hong Kong shares were down sharply in afternoon trade as investors turned jittery following the news from North Korea, dealers said. They said the news triggered concerns over regional security and the likelihood of heightened political tensions.
      
At 3.26 pm the Hang Seng Index had dropped 211.85 points, or 1.18 pct, to 17,691.54.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on fund inflows with heavyweight banks and steel makers gaining ground, dealers said.
   
North Korea's confirmation that it had conducted a test had little impact on the market, they added. The Shanghai A-share Index jumped 34.81 points or 1.89 pct to 1,875.12 and the Shenzhen A-share Index was up 8.84 points or 1.94 pct at 464.29.
   
Singapore shares were sharply lower in afternoon trade as investors reacted to the North Korean test. At 3.26 pm the Straits Times index was down 38.45 points or 1.45 pct at 2,610.76.

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Gold price spikes on NKorea nuclear test, eases on China reaction

SYDNEY  - Gold prices spiked immediately after North Korea was reported to have carried out a nuclear test but eased after China condemned the test, dealers said
   
They said the price jumped more than 1 pct in Asian trading but volumes were relatively light because of a public holiday in Japan and with the US market closed tonight.
   
Dealers said the absence of Japanese speculators meant the market lacked liquidity while gains were capped by German selling.
   
CommSec senior equities economist Craig James said there was an initial knee jerk reaction by gold dealers.
   
"We saw some initial safe haven buying but those positions seem to have been unwound to some extent as it looks to be a one-off act of provocation," James said. "Nerves were calmed a bit when China came in opposition to the test."    

At 3.40 pm the spot gold price was 576.50 usd an ounce, having hit an intra-day high of 579.80 usd from 572.80 an ounce late in New York on Friday.
   
Aequs Securities head of institutional trading Ric Klusman noted that Asian gold prices often lag the European and US markets.
   
"It is really a matter of waiting and seeing where trading opens up in Europe and how the US reacts to the test when it wakes up," Klusman said. "We're expecting the gold price to bounce about 10.00 usd."
   
In recent weeks the gold price has been tracking oil, falling to its lowest level in more than three months on October 4 at 559.40 an ounce after crude oil dropped an 8-month low.

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