US & World Daily Markets Financial Briefing 12-06-2006

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Stocks up after losses last week

NEW YORK - Stocks are up at the start a busy week of interest-rate speculation, with General Motors seen advancing after auto parts supplier Delphi reached a deal with its union and GM over a buyout program.
    
In the first hour of trading, the Dow added 17.94, or 0.16 percent, to 10,909.86. The blue-chip index shed 355 points last week to stand about 6.5 percent from a six-year high of 11,642.98, reached May 10.
   
Broader stock indicators were narrowly mixed. The Standard & Poor's 500 index was up 1.56, or 0.12 percent, at 1,253.86, and the Nasdaq composite index lost 3.67, or 0.17 percent, to 2,131.39.
   
Dow industrials finished at a four-month low on Friday in a week where the market succumbed to heavy losses on concerns over inflation, rising global interest rates and slowing economic growth. The Nasdaq Composite finished at a seven-month low.
   
With three scheduled appearances by Federal Reserve Chairman Ben Bernanke and reports about last month's consumer and producer prices on the calendar, markets are getting braced for plenty of clues about the central bank's inflation-fighting campaign this week.
   
Bernanke will make the first of those appearances Monday afternoon, with subsequent speeches on Tuesday and Thursday.
   
Following his market-busting comments last Monday, analysts are anxious the Fed chief may tip his hand about the bank's rate-hiking program.
   
The dollar edged higher against the euro and the yen before the Bernanke speech.
   
Of companies in focus, Delphi Corp. late during Friday's session said an agreement has been reached with the United Auto Workers and General Motors Corp. that expands existing retirement incentives and establishes a buyout program.
   
GM shares rose 33 cents in light Frankfurt trading.
   
Jeweler Signet Group rallied in London trade after saying that it has held preliminary talks with Zale Corporation over a merger.

However, Signet also cautioned that, at this early stage, there is considerable uncertainty if a transaction will take place. Over the weekend, the Mail on Sunday newspaper reported that the company had been approached over a 2.3 billion pound tie-up with Zale in the last few months.
   
Steelmaker Arcelor said Monday that it has rejected Mittal Steel's current offer, which values the company at around $31 billion, because it under-values the company. However, Arcelor said that its management board will meet again with Mittal if Mittal improves its offer.
   
Job search firm Monster Worldwide frequently granted options to top executives dated ahead of sharp run-ups of its share price, The Wall Street Journal reported Monday, citing filings the company has made to the Securities and Exchange Commission.

The report said the analysis raises questions about whether the grants were backdated or otherwise timed to boost their value to the recipients. About 40 companies have been caught up in inquiries concerning possible backdating, the report said.
   
Monster said independent directors will probe its options practice.
   
Intuit Inc., Semtech and McAfee all late on Friday disclosed stock option probes from the SEC.
   
Legg Mason may be active after a Barron's feature said the stock has become much more attractive after a recent stock sell-off.
   
Genentech received an upgrade to buy at Merrill Lynch.

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Dollar garners renewed support ahead of key inflation news

LONDON - The dollar remained firm ahead of a raft of speeches from US rate setters and today's key US inflation data as the markets price in one more rate hike from the US Federal Reserve.
   
Currency markets are on inflation watch this week, and will be closely monitoring tomorrow's US PPI release and Wednesday's CPI data, especially as the noises coming out of the Fed have been on the hawkish side.
   
Today, currency watchers will be keeping a close eye on speeches from Fed officials Pianalto, Fisher, Olson and Bies to see if they make any reference to the market's prediction of at least one more rate hike, that would take the Fed funds rate up to 5.25 pct.
   
As well as the recent spike up in US rate expectations, the dollar continues to garner some support from the market's reduced appetite for risk.
   
What has been bad for equities and commodities has been beneficial for bonds and the dollar as they are considered to be less risky assets.
   
In addition, Friday's news that the US trade position was not as bad as expected in April helped solidify that support for the US currency. Though the US trade deficit rose to 63.4 bln usd, fom 61.9 bln in March, it was lower than Wall Street forecasts of a 65 bln shortfall.
   
The US currency has been on the backfoot for much of this year, partly because of interest rate factors and structural considerations surrounding the US current account deficit, which accounts for about 6 pct of the country's GDP.
   
Expectations of an imminent Fed pause contrast with predictions of tighter monetary policy from the European Central Bank and the Bank of Japan, and prompted a sharp pullback in the value of the US currency.
   
Elsewhere, the pound was supported against the euro by the news that UK manufacturers' output prices are rising at an eight month high, heightening concerns that sky-high energy and raw material costs are increasingly feeding through the supply chain.
   
The office of National Statistics revealed earlier that output prices rose by 3.0 pct in the year to May, up from the 2.5 pct recorded in April, while the core rate edged up to a one-year high of 2.4 pct from 2.2 pct. On a monthly basis, the headline rate rose 0.3 pct, while the core rate was 0.2 pct higher.

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The European Markets at 12.00 BST

London - Leading shares remained under pressure at midday as further selling across mining and oil stocks outweighed a flurry of M&A speculation, with concerns ahead of key inflation reports due this week also encouraging the bears, dealers said.
   
By 11.55 am, the FTSE 100 was down 32.2 points at 5,623.0, while the broader FTSE 250 index also gave up its early gains to trade 49.9 points lower at 8,974.8.

Frankfurt - Shares were lower in midday trade following losses on Wall Street on Friday and ahead of this week's key US inflation data, and as Bayer slid on news Merck KGaA has increased its stake in Schering, which Bayer is in the process of taking over, dealers said.
   
At 11.50 am, the DAX 30 index was 46.29 points or 0.85 pct lower at 5,417.79, having moved between 5,407.89 and 5,470.23 so far this session. The MDAX was at 7,607.88, down 90.84 points or 1.18 pct, while the TecDAX was at 626.18, down 3.44 points or 0.55 pct.

Paris - Shares were lower at midday in light trade as investors were cautious ahead of key inflation reports due later this week amid persistent market volatility, dealers said.
   
At 12.50 pm, the main CAC-40 index was down 31.60 points or 0.68 pct at 4,736.58, on light trading volume of 1.15 bln eur.

Amsterdam - Shares were lower at midday, in line with other European exchanges as investors are still wary of possible further interest rate hikes, dealers said.
   
At 12.07 pm, the AEX was down 3.15 points or 0.74 pct to 423.32, after opening at 425.79 and reaching an earlier high of 428.40.

Brussels - Shares were lower in late morning trading, impacted by Wall Street losses at the end of last week, with utility group Suez heading the
blue-chip fallers, traders said.
   
At 10.31 am, the Bel 20 was down 12.31 points or 0.35 pct at 3,534.97.

Milan - Share prices were lower in midday trade, tracking Friday's losses on US markets, with Mondadori bucking the trend after it entered into exclusive talks to buy Emap France, dealers said.
   
At 12.30 pm, the Mibtel index fell 0.69 pct to 27,113 points and the S&P/Mib was off 0.74 pct at 35,560, while volumes stood at 3.13 bln eur.

Madrid - Share prices were lower in cautious midsession trade ahead of further direction on inflation trends in the US, with main banks SCH and BBVA under pressure, while Fadesa outperformed on news it will enter the IBEX-35 index, dealers said.
   
At 12.42 am, the IBEX-35 index was down 49.8.1 points at 11,048.4, after trading in a range of 11,038-11,109, on volume of 1.256 bln eur.

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Asian stocks close mixed on local factors, US economic fears

HONG KONG - Share prices across the Asia-Pacific region ended mixed, with markets affected by local factors and investors still cautious about the US economy, dealers said.
   
Tokyo share prices closed higher, aided by expectations that heavy selling by foreign investors and speculators is likely to ease this week following the expiry of June futures and options contracts last week, Japanese dealers said.
   
Typically the market comes under pressure from sellers in the run-up to the settlement of the contracts.
   
Dealers noted that better-than-expected revised January-March GDP data also provided some relief to the market.
   
However the upside was limited by caution over prospects for Wall Street after last Friday's decline, and ahead of key US data, including May consumer prices on Wednesday, that are likely to provide more clues on the Federal Reserve's interest rate intentions.
   
The Nikkei 225 Stock Average closed up 82.17 points or 0.6 pct at 14,833.01, while the broader TOPIX index of all first-section issues was up 12.21 points or 0.8 pct at 1,510.89.
   
"We believe that the market, while it remains exposed to performances on Wall Street, will settle down a bit this week, as it has just got through the very worst phase in terms of the deterioration in supply and demand conditions," Shinko Securities equity strategist Tsuyoshi Segawa said, in reference to the special quotation week.
   
The Australian market was closed for a holiday.
   
Hong Kong shares were marginally higher in afternoon trade, with the market still cautious ahead of the release of fresh US economic data, dealers said.
   
They said there was some interest in select blue chips but the overall market lacked direction and turnover was comparatively low.
   
At 3:28 pm the Hang Seng Index was trading at 15,662.60, up 33.91 or 0.22 pct.
   
In mainland China, A-shares in Shanghai and Shenzhen closed slightly higher on bargain-hunting, with strong interest in banks and retailers, dealers said.
   
The Shanghai A-share Index gained 1.84 points or 0.11 pct to 1,632.62 and the Shenzhen A-share Index was up 1.48 points or 0.36 pct at 415.11.
   
Taiwan share prices finished lower, but far off intraday lows, as bargain-hunting emerged in late trade to halt a market slide driven earlier by concerns over the island's political crisis and prospects of US interest rate hikes and inflation fears, dealers said.
   
They said investors became reluctant to sell down their holdings further even after Parliament decided to include an opposition initiative to recall President Chen Shui-bian for an extraordinary session.
   
The Taiwan Weighted Index closed down 1.73 points, or 0.03 pct, at 6,442.90.
   
South Korean shares ended higher in a technical rebound as institutions sought bargains, with trading volatile and many blue chips weaker on selling by foreign investors, dealers said.
   
They added that the market continued to be affected by persistent concerns over US interest rates.
  
The KOSPI index closed up 4.19 points or 0.34 pct at 1,239.84, the day's high, and off a low of 1,219.84.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold remains weak under pressure from dollar

LONDON - Gold prices remained weak in early afternoon London dealing continuing under pressure from the firm dollar.
   
Spot gold was quoted at 604.50-605.50 usd, with silver at 10.97-11.07 usd; platinum at 1183-1188 usd and palladium at 309.50-314.50 usd.
   
Precious metals prices slid late last week as money moved into treasuries following the ECB rate hike Thursday and on speculation the Fed will do the same later this month. Spot gold was driven down to 608.40 by late trading in New
York on Friday.
   
The bright spot for gold was that the dollars gains were limited by weak data.
   
Analyst James Moore of TheBullionDesk.com said US economic data "is likely to play a heavy part in market direction this week", with the market looking for direction to today's May Treasury gap, inflationary PPI and CPI, Retail sales, first quarter current account gap and consumer sentiment for June.
   
Moore said Friday's late selling has lasted through to this morning, and "has pressured the metal down towards 600 usd".
   
He added that "given the current mood its looks extremely likely we will remain vulnerable to further dips short-term."
   
Moore forecast strong support around the 600 usd level, underpinned by technical support between 585-578 usd, which is likely to hold, barring any extremely bearish news.
   
Like gold, silver has been under pressure overnight but has bounced positively from the 11.05 usd level this morning. Silver is also vulnerable to further price pressure short-term but should find good chart support between 11.05-10.90 usd, Moore said.
   
Base metals were mixed, with LME copper for three month delivery down 2.72 pct to 7,150 usd a tonne while three-month zinc fell 2.38 pct at 3,329 usd. LME
three month lead rose 2.97 pct to 1,040 usd a tonne, tin was unchanged at 7,875 usd and nickel fell 2.13 pct to 19,575 usd.

Bonds meandered, with the yield on the 10-year Treasury note inching up to 4.99 percent from 4.98 percent late Friday.    

Continued tension over Iran's nuclear a rms program lifted oil prices, while traders monitored the first storm of the year developing in the Gulf of Mexico. A barrel of light crude added a penny to $71.64 on the New York Mercantile Exchange.

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