US & World Daily Markets Financial Briefing 12-05-2006

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U.S. stocks open lower; inflation, rate jitters persist

NEW YORK - U.S. stocks fell in early trading Friday as the latest data on import prices did little to ease concerns about inflation, while a rise in bond yields only served to underline the market's glum outlook on interest rates.
   
A surprise narrowing in the U.S. trade deficit offered some consolation.
   
The Dow Jones Industrial Average was down 30 points at 11,470.
   
The Nasdaq Composite Index fell 17 points to 2,255 while the S&P 500 Index dropped 5 points to 1,300.
   
On Thursday, stocks ended lower, logging their biggest one-day decline since January, on concerns that rising commodity prices will translate into higher inflation and will prompt the Federal Reserve into raising interest rates again in June.
   
Stocks on the move
   
General Motors Corp. added 1.4% to $26.16 after KeyBanc Capital Markets upgraded the car maker to buy from hold. The broker said it believes negotiations between the company, UAW and Delphi will be successfully completed with no material labor disruptions. KeyBanc added that it sees earnings improving in 2006 and 2007, boosted by the introduction of new full-size sport utility vehicles and pickup trucks, and cost saving initiatives.

Before Thursday's 3% pullback, shares in the carmaker had gained 18% in the previous five sessions.
   
Yahoo Inc. shares fell 11% to $30.65 in early dealings. Chairman and CEO Terry Semel said at a Syracuse University question-and-answer session that the company turned down an offer from Microsoft Corp. to buy a stake, according to the UK newspaper, the Financial Times. Microsoft shares were off 0.4%.
   
Shares in Expedia slumped more than 20% to $15.14 after the online travel company's earnings fell more sharply than forecast.
   
Best Buy Co. saw its shares tick up 17 cents to $53.99 after it agreed to buy a majority interest in Jiangsu Five Star Appliance Co., China's fourth-largest appliance and consumer electronics retailer. The deal, which has won Chinese regulatory approval, calls for Best Buy to invest $180 million, including $122 million in capital.

Best Buy said the move would be neutral to earnings in fiscal 2007. Five Star's 2005 revenue was nearly $700 million, a rise of more than 50%.
   
Elsewhere, Mittal Steel and Arcelor both reported first-quarter profit declines on declining steel prices and rising raw materials costs. The world's leading steelmakers are locked in a bitter takeover battle. Both companies, however, forecast better times ahead.
   
Also German steelmaker ThyssenKrupp posted a better-than-expected pre-tax profit from continuing operations as its steel and stainless businesses benefited from increased international demand and higher prices.

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Dollar falls to new lows in spite of narrower trade gap

NEW YORK - The dollar continued its slide Friday, hitting new one-year lows versus European currencies and eight-month low versus the yen, after much narrower-than-expected U.S. trade deficit data failed to reverse the broadly bearish sentiment in the market.
   
The greenback staged a brief rally after a report showed the nation's trade deficit narrowed to $62.0 billion in March, the lowest since last August. Economists surveyed by MarketWatch had expected the deficit to widen to $66.9 billion.
   
"The U.S. trade deficit for March was smaller than expected and while there are positive GDP implications, the implications for the dollar are minor," said Marc Chandler, currency strategist at Brown Brothers Harriman. Dollar rally is "brief and shallow. The short-term market is keen to sell into dollar upticks. Sentiment remains extremely poor."
   
In early New York trading, the euro rose as high as $1.2957, and was last at $1.2886, up from $1.2855 late Thursday. The dollar also fell against the yen, moving to 109.82 yen from 110.19 yen. The British pound rose to $1.8982 from $1.8833. The dollar was at 1.2029 Swiss francs from 1.2127 francs.
   
In the week, the U.S. currency gave up nearly 3% against the yen and 1.6% against the euro.
   
Narrower Trade gap
   
Record exports to some of the largest U.S. trading partners pushed the trade deficit lower by 5.6% in March, the Commerce Department said.
   
This is the first time the deficit has declined for two straight months since October and November 2003. The improved trade balance was even more remarkable because exports of civilian aircraft, typically a source of export strength, declined in March.
   
The U.S. exported a record amount of goods to Canada, Mexico, the European Union, China and the South/Central America region in March.
   
BBH's Chandler cautioned that "given that the improvement was largely due to the way oil was priced and that oil has rallied further since the data, further deterioration is likely."
   
Concerns about the twin U.S. trade deficit and government spending deficit have been magnified of late, amid debates about whether the Federal Reserve will pause its interest rates-tightening cycle at the same time that Europe and Japan signal rising rates.
   
Separately, the dollar registered little reaction to a report that showed a higher-than-expected increase in import prices in April.
   
Prices of goods imported into the U.S. rose 2.1% in April, powered by an 11.5% increase in the price of imported petroleum, the Labor Department said Friday. The spike in the price of imported petroleum was the largest since March 2005. Economists expected import prices to rise 1% in April after March's 0.4% drop.
   
But excluding the rise in petroleum prices, import prices were flat. Excluding all fuels, import prices rose 0.1%, the fifth consecutive increase.
   
Later in the session, market players will review data on the University of Michigan's poll of May consumer sentiment. Economists surveyed by MarketWatch are expecting the consumer sentiment index to fall to 86.4 from 87.4.

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The European Markets at 12.00 BST

London - UK blue chips extended declines in midday trade as the falling price of the dollar put pressure on equities while mining and oil stocks fell victim to profit-taking after commodity prices retreated from recent highs, dealers said.
   
At 12.07 pm, the FTSE 100 was 92.4 points lower at 5,949.6, with the broader indices all lower. Volume was above par, with 1.257 billion shares changing hands in 171,549 deals.

Frankfurt - German shares were sharply lower in midday trade, extending yesterday's losses, following a fall on Wall Street overnight and after oil prices spiked and the euro strengthened against the dollar, which took its toll on the German automakers, which lingered at the bottom of the DAX, dealers said.
   
However, ThyssenKrupp posted gains after the steel conglomerate reported second-quarter results that surpassed even the most optimistic analysts' forecast and hiked its full-year guidance, prompting a raft of upgrades and price target hikes.
   
At 11.52 am, the DAX 30 index was 97.91 points or 1.62 pct lower at 5,956.81, having moved between 5,943.54 and 6,043.65 so far this session. The MDAX was at 8,899.50, down 165.22 points or 1.82 pct, while the TecDAX was at 735.63, down 18.21 points or 2.42 pct.

Paris - Shares were sharply lower in midsession trade, resuming yesterday's late slump after Wall Street's slide, on growing concerns over the effects of high commodity prices and the weakening dollar, dealers said.
   
At 12.56 pm, the CAC-40 index was trading 83.43 points or 1.59 pct lower at 5,179.71, on trading volume of 2.57 bln eur.

Amsterdam - Shares prices were lower in early afternoon trade in line with other European markets as futures indicate a lower open on Wall Street, dealers said.
   
At 1.37 pm the AEX index traded just off its intraday lows, down 7.75 points or 1.66 pct at 459.13, after opening near its highs at 464.12.

Milan - Share prices were lower at midday as overnight losses on Wall Street, higher oil prices and a weak dollar triggered profit-taking across the board, dealers said.
   
At 12.49 pm, the S&P/Mib index had lost 0.8 pct to 38,213 points and the Mibtel was down 1.15 pct at 29,580, while volumes were 5.92 bln eur.

Madrid - Share prices were sharply lower in light late morning trade, depressed by Wall Street's overnight sell-off, with blue chips like Repsol YPF under pressure, while Telefonica outperformed on forecast-beating first quarter results, dealers said.
   
At 10.57 am, the IBEX-35 index shed 155.3 points or 1.28 pct to 11,855.1, after trading in a range of 11,851-11,931, on thin turnover of 815 mln eur.

Stockholm - Shares were sharply lower in midday trade across the board on profit taking as the dollar slid against the krona, and as investors took fright at the sight of a negative Nasdaq futures ahead of the weekend, brokers said.
   
At 12.15 pm, the OMX Stockholm index was down 1.68 pct at 334.98 and the OMX Stockholm 30 down 1.65 pct at 1,026.18.

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Asian shares close mostly lower, Tokyo slips on concerns over strong yen

HONG KONG - Share prices across the Asia-Pacific region ended mostly down with Tokyo lower for the fourth consecutive day, reflecting investors' concerns about the effect of a strong yen on earnings of exporters, dealers said.
   
But the key index managed to close off its weakest level for the day as some bargain hunters stepped in during afternoon trading.
   
The Nikkei 225 Stock Average closed down 260.36 points or 1.5 pct at 16,601.78, after touching an intra-day low of 16,422.49. It was the lowest finish for the Nikkei 225 since March 24, when it settled at 16,560.87.
   
The broader TOPIX index of all first-section issues fell 23.13 points or 1.35 pct to 1,688.18, above a low of 1,675.39.
   
For the week, the Nikkei 225 lost 3.2 pct while the TOPIX fell 2.8 pct.
   
Share prices in Australia finished lower as investor sentiment was shaken by the large fall in New York overnight where prices tumbled due to rising inflation concerns because of record commodity prices, dealers said.
   
They said while banking stocks and other sectors were largely down, investors took a mixed approach to resources as metal prices reached record levels overnight.
   
Dealers said index leading resource BHP Billiton fell from its record closing level set yesterday, but Rio Tinto set a new record closing high.
   
The S&P/ASX 200 shed 35.0 points or 0.65 pct to close at 5,329.5, dropping from yesterday's record close of 5,364.5.
   
In Hong Kong, share prices were trading lower in the afternoon after heavy falls on Wall Street, dealers said.
   
Steep losses on the Japanese market also weighed on sentiment, they added.
   
At 3:29 pm, the Hang Seng Index was down 217.68 points or 1.27 pct at 16,923.10.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher on renewed strong follow-through buying after yesterday's consolidation with blue chips, textile firms and metal listings leading gainers, dealers said.
   
The Shanghai A-share Index added 69.13 points to 1,682.74 on turnover of 41.14 bln yuan and the Shenzhen A-share Index was up 10.63 points at 402.76 on turnover of 21.39 bln yuan.
   
Share prices in Seoul ended sharply lower after a record close the previous session, as Samsung Electronics, banks and KEPCO posted sharp losses, dealers said.
   
Wall Street's overnight pullback and a rebound in oil prices brought on a weak start, sending the index more than two pct lower in initial trade.
   
The market remained weak throughout the session, with overall sentiment undercut by a recent run of sharp gains and massive program selling, triggered by futures selloffs by foreign investors.
   
Lackluster performances in major Asian markets also led investors to take profits ahead of the weekend.
   
The KOSPI index closed down 19.50 points or 1.33 pct at 1,445.20.

Asian Bourse Round-Up

For a full list of closing prices, click here

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Gold futures climb, but back off levels above $730

SAN FRANCISCO - June gold climbed as high as $732 an ounce in electronic trading, a level not seen since late 1980. But the contract last traded at $723.50, up $2.

"The gold market has now appreciated better than 70% over the past year for a $300 gain," said Jon Nadler, an investment products analyst at Kitco.com.

July silver was down 23.5 cents at $14.70 an ounce and July copper lost 7.3 cents to stand at $3.85 a pound after climbing Thursday to a record level above $4.
 
On the bond market, long-term Treasury prices fell, sending yields higher after the import data stoked inflation fears. The benchmark 10-year note was down 7/32 at 99 19/32, with its yield at 5.18%.
   
Crude-oil futures edged lower after a key energy agency cuts its estimate for 2006 oil demand by 15%, prompting some investors to lock in gains logged over the last week. Reports of an oil pipeline explosion in Nigeria may put a floor on declines.

Crude for June delivery was last down 44 cents at $72.88 a barrel. 
   

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