US & World Daily Markets Financial Briefing 10-07-2006

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Stocks gain ahead of Alcoa earnings

NEW YORK - Stocks climbed in early trading Monday as Wall Street steadied itself from the prior session's plunge amid growing optimistism for another solid earnings season.

Stocks declined on Friday, after an unexpected 0.5 percent rise in average hourly earnings along with warnings from 3M and Advanced Micro Devices. The Dow industrials tumbled 134 points, the Nasdaq Composite lost 25 points and the S&P 500 erased 8.6 points.
   
Acquisitions led today's news ahead of Alcoa Inc.'s results, due after the closing bell. Kraft Foods Inc. agreed to acquire the Spanish and Portuguese units of United Biscuits for $1.07 billion, and Kimco Realty Corp. said it will buy Pan Pacific Retail Properties Inc. for $2.9 billion.

Analysts predict Alcoa will earn 86 cents a share on revenue of $8.01 billion.
   
Expectations for strong second-quarter earnings could relieve investors from their chronic fears about the economy. On Friday, while mild monthly job growth fed hopes that interest rates have been raised enough to contain inflation, a profit warning from 3M Co. drove concerns about slowing economic growth. 

In the first hour of trading, the Dow rose 59.07, or 0.53 percent, to 11,179.74. Broader stock indicators advanced. The Standard & Poor's 500 index was up 6.45, or 0.51 percent, at 1,271.93, and the Nasdaq composite index gained 12.30, or 0.58 percent, to 2,142.36.
   
Bonds pulled back from last week's rally, with the yield on the 10-year Treasury note eding up to 5.15 percent from 5.13 percent late Friday.

Stocks in focus

General Electric, PepsiCo and Texas Instruments also report quarterly earnings this week.
   
KB Home added to concerns in the homebuilding sector, saying after Friday's close that the negative trends in the U.S. sector could extend into 2007.
   
Elsewhere, General Dynamics could get a lift after Barron's magazine said investors appear to be undervaluing the defense contractor and maker of corporate aircraft.
   
Walt Disney took in an estimated $132 million over the weekend from "Pirates of the Caribbean: Dead Man's Chest."
   
On the mergers and acquisitions front, Centro Watt, a U.S.-Australian joint venture, agreed to buy Heritage Property Investment Trust for $3.2 billion, or $36.15 a share.
   
Kraft Foods reportedly agreed to buy the 75 percent it didn't already own in United Biscuits for over $1 billion.

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Dollar drifts higher in gradual recovery, US data awaited

LONDON - The dollar continued to drift higher in a gradual recovery from selling last week in the wake of weak US jobs in a quiet day for economic data.
   
Analysts were sceptical about whether the dollar can hang on to its gains, as the coming weeks may reveal that US rate hike expectations have been excessive.
   
The Fed has been on a hiking cycle since mid-2004, taking the benchmark rate from as low as 1.00 pct to 5.00 pct at present. One or two more quarter point increases are predicted.
   
Separately, renewed speculation that China may free up the yuan further also aided the dollar.
   
"Chinese money supply data are released at some point and could be the catalyst for a further tightening in monetary policy to accompany the recent Chinese yuan appreciation," said Steven Pearson at HBOS. "This would weigh on risk assets, including oil, to the benefit of the dollar," he added.
   
Meanwhile, the yen found support from expectations that the Bank of Japan will end its zero interest rate policy on Friday. There is some speculation about how much of a hike will be delivered, however.
   
"With the Japanese government clearly opposed to a rate increase and the GDP deflator still negative, we suspect the BoJ will opt for a smaller than expected calibre of rate hike," said Pearson.
   
He predicts a hike in the region of 10-15 basis points as opposed to the widely expected 25 basis point move. If he is proven correct, the yen will likely fall.
   
The euro, meanwhile, was propped up by expectations of interest rate rises in the 12-nation area over the coming months after the decidedly hawkish tone struck by the European Central Bank last week.
   
Markets are pricing in a quarter point rate hike at the ECB's next rate decision on August 3. Previously investors were plumping for an August 31 increase. The change came after ECB chief Jean-Claude Trichet signalled "strong vigilance" on the inflation front.
   
The economic calendar this week is light for euro zone data but each indicator will be watched closely to see if it warrants rate hikes.
   
The two top tier data this week are industrial output figures from France and Italy. The former, out today, exceeded expectations, rising by 2.0 pct between May and April. Analysts had predicted a more modest gain of 1.5 pct.
   
Elsewhere, the pound was little changed after data showing that producers are passing on price increases and that house prices are rising.
   

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The European Markets at 12.00 BST

London - Share prices were in negative terrain at midday, but off morning lows, under pressure from oil stocks after a recent decline in crude prices. At 11.50 am, the FTSE 100 index was 21.1 points behind at 5,8678 after earlier hitting an intraday low of 5,856.5.
   
Standard Life was changing hands at 240-3/4 pence on the first day of dealings, off an starting price of 245 pence, well above the 230 pence issue price.

Frankfurt - At 11.44 am, the DAX 30 index was 41.09 points or 0.72 pct lower at 5,640.76, having moved between 5,633.47 and 5,683.68 so far this session. The MDAX was at 7,832.77, down 26.36 points or 0.34 pct, while the TecDAX was at 645.22, down 1.31 points or 0.20 pct. The DAX futures contract was at 5,673.00, down 39.50 points or 0.69 pct, while bund futures were at 115.26, down 0.15.

Paris - At 12.48 pm, the main CAC-40 index was 27.66 points or 0.56 pct lower at 4,926.05, on light volume of 1.03 bln eur.
   
Of the CAC-40 shares, 34 were lower and five were higher. Arcelor stock remained withdrawn from the index, pending the outcome of Mittal Steel's merger offer. On the Matif, July CAC-40 futures were trading down 27.5 points or 0.54 pct at 4,928.5.

Amsterdam - Shares were lower at midday, with TomTom and a number of heavyweight financials keeping the AEX index in the red, dealers said.
   
At 12.07 pm, the AEX was down 0.58 points or 0.13 pct to 440.12, after opening at 441.19 and reaching an earlier low of 438.61.
   
TomTom slumped 6.90 pct to 29.30 eur with 18.1 mln shares traded, recuperating from a 12 pct sell-off shortly after the market opening, after Friday's second quarter sales warning.

Milan - Share prices were lower at midday, depressed by Wall Street's falls late Friday, with Italy's World Cup win failing to give the market a boost, apart from Juventus and AS Roma football clubs, brokers said.
   
At 11.50 am, the Mibtel index was down 0.32 pct to 27,816 points and the S&P/Mib off 0.49 pct to 36,256.
   
Juventus rose 5.79 pct to 1.481 eur. Brokers said there is speculation Italy's World Cup win could lead to a softening of penalties against Juventus and other leading clubs in match-rigging allegations.

Helsinki - At 12.06 pm, the OMX Helsinki 25 was 0.26 pct weaker at 2,438.10 and the OMX Helsinki was down 0.32 pct at 8,515.38. Turnover was 135 mln eur.
   
Nokia, accounting for three-quarters of the trading volume, was off 0.72 pct to 15.27 eur, in line with its ADR closing price in New York trade on Friday.

Stockholm - At 12.10 pm, the OMX Stockholm index was down 0.23 pct at 306.19, while the OMX Stockholm 30 index was down 0.24 pct at 947.34. Turnover was 3.32 bln skr.
   
The main sub-indices moving at midday were telecommunication services, down 0.52 pct; materials, 0.50 pct lower; and energy, down 0.87 pct. TeliaSonera was down 0.48 pct at 41.10 skr bid; Boliden, 1.15 pct lower at 128.50; and Vostok Nafta, down 0.86 pct at 459.

Brussels - At 11.46 am the Bel 20 was down 10.13 points or 0.27 pct at 3,705.78. Holding company Nationale a Portefeuille was 3.10 eur or 1.10 pct lower at 279.00, whilst peer GBL dropped 0.90 eur or 1.09 pct to 81.90.
   
Agfa-Gevaert was off 0.01 eur or 0.05 pct at 18.89. Chief executive Marc Olivie reiterated restructuring plans in a press interview this weekend, but analyst Dirk Saelens at KBC Securities said the group "still has to prove that they can improve margins in a structural way."

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Asian shares close higher on bargain hunting, positive economic news

HONG KONG - Shares across the Asia-Pacific region closed higher on positive economic news which spurred bargain hunting, dealers said.
   
Tokyo shares finished higher as stronger-than-expected May machinery orders, highlighting the growing strength of the economy, brought bargain hunters into the market, dealers said.
   
The Nikkei 225 Stock Average closed up 245.20 points or 1.6 pct at 15,552.81, after moving between 15,079.74 and 15,555.43.
   
The broader TOPIX index of all first-section issues rose 20.92 points or 1.3 pct to 1,594.07, its high for the day. The index traded between 1,549.95 and 1,594.07.
   
"Upbeat (May) machinery orders, released early in the afternoon, helped boost market sentiment," said Hitoshi Yamamoto, chief portfolio manager at Commerz International Capital Management (Japan).
   
But Yamamoto was skeptical about whether today's strong market bounce would continue. "Many market participants are wary ahead of this week's Bank of Japan (BoJ) policy meeting," he said.
   
While the central bank is widely expected to raise its key overnight rate by 25 basis points, the market focus will be on its accompanying statement and a press briefing from governor Toshihiko Fukui, for any clues as to whether a further hike may be likely later in the year.
   
Australian shares closed slightly higher as investor sentiment shook off negative leads from a drop on Wall Street on Friday and oil prices rose to a record high, dealers said.
   
They said investors were buoyed by the release of data showing job advertisements jumped in June to a new high, indicating solid future employment growth in the economy.
   
The S&P/ASX 200 gained 7.5 points or 0.15 pct to close at 5,142.8. The benchmark indicator closed at the day's high, with the low at 5,117.7.
   
Hong Kong shares were higher in afternoon trade as investors picked up some attractively-priced stocks, dealers said.
   
At 3.27 pm the Hang Seng Index was up 99.09 points or 0.60 pct at 16,558.87 as select China stocks drew buying interest on optimism over corporate earnings.
   
In China, A-shares in Shanghai and Shenzhen closed higher on bargain-hunting, with banks and property developers in demand, dealers said.
   
The Shanghai A-share Index rose 4.61 points or 0.25 pct to 1,823.83 and the Shenzhen A-share Index was up 2.25 points or 0.49 pct at 462.89.
   
Seoul shares ended sharply higher in volatile trade, with the index just below 1,300 points as large cap lenders and telecom stocks posted solid gains, dealers said.
   
The market started weak, with investors remaining cautious ahead of earnings releases this week by industry bellwethers Shinsegae, POSCO and Samsung Electronics.
   
But the market gained momentum to close near its high for the day as foreign investor activity in futures triggered program buying of 457.4 bln won.
   
The late upturn in Tokyo shares also aided sentiment.
   
The KOSPI index closed up 25.36 points or 1.99 pct at 1,299.29, after moving between 1,299.41 and 1,260.75.

Asian Bourse Round-Up

For a full list of closing prices, click here

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Gold falls as dollar edges up despite weak US data, oil weakens

LONDON - Gold prices fell as the dollar edged higher, showing resilience despite some weak US data last week, and as oil weakened on a perceived easing of tensions in the Iranian nuclear dispute.
   
At 1.03 pm, spot gold was quoted at 622.75 usd against 632.60 usd at the time of the COMEX market close on Friday. Other precious metals also traded weak.
   
Spot silver was down at 10.98 usd against 11.41 usd, platinum was lower at 1,220.50 usd from 1,228.00 usd and palladium was down at 317.00 usd against 318.00 usd.
   
Gold closed slightly lower on Friday, erasing intra-day gains amid volatile trade and profit taking, and despite losses in the US dollar following a weaker-than-expected US payrolls reading.
   
The metal has continued lower today as a stronger yen induced selling in the Asian session and as follow-through selling pushed the precious metal lower in European trade.
   
"The dollar has been the main factor and oil is a bit weaker, plus we failed to move significantly higher last week so I think we've found a ceiling for now," said TheBullionDesk analyst James Moore.
   
He said he sees further sideways trading going forward as the market heads into the quiet summer holiday period, having already posted strong gains on rising geopolitical tensions in Iran and North Korea.
   
Gold hit a 26-year-high of 730 usd in mid-May on increased geopolitical tensions, high oil prices and an uncertain outlook for the dollar, but a brutal sell-off soon ensued, sending the precious metal down to 543 usd in mid-June.

Wheat harvest could boost flour prices

WICHITA, Kan. - A paltry winter wheat harvest in the nation's breadbasket has driven up the cost of flour for consumers, with more price hikes feared as drought takes a growing toll on the nation's spring wheat crop as well.
   
Not only is the raw ingredient more costly because of this season's short wheat crop and low stock carry-over from last year, but flour mills across the nation are having to scramble to find the classes of wheat their customers want to buy. The only bright spot is crop quality: Test weights and protein levels for winter wheat are both exceptionally good this year.
   
Hard red winter wheat flour -- the type of flour most commonly grown in Kansas, the nation's largest wheat producer -- is used for making flour for breads.
   
Kansas is also the nation's biggest flour milling state. Texas and Oklahoma, both major winter wheat growers, had dismal harvests this season. Winter wheat is planted in the fall and harvested in early summer.
   
Last month, the Agriculture Department forecast the Kansas wheat crop would come in at 291.4 million bushels. That would make the crop 23 percent smaller than last year's harvest.
   
Nationwide, the agency predicted the winter wheat harvest would be 1.26 billion bushels, 16 percent below last year. The agency was expected to revise those estimates Wednesday.
   
With the winter wheat harvest so poor, people in the industry were initially buoyed by the greater numbers of acres planted into spring wheat.
   
The all-wheat planted acreage was up 1 percent from last year, with spring wheat acreage up 4 percent from a year ago, according to the latest count from the National Agricultural Statistics Service.
   
"We have to watch the spring crop. It is at a critical place now," said Mike Woolverton, a grain marketing economist at Kansas State University.

Crude futures slipped as energy traders took profits from the recent surge in prices, although worries about Iran and motor fuel demand were expected to support the market. A barrel of light crude lost 49 cents to $73.60 on the New York Mercantile Exchange.

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