US & World Daily Markets Financial Briefing 13-06-2006

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Stock prices climb in early trading

NEW YORK - Wall Street put aside its interest rate fears Tuesday, bidding stocks higher on lower gold and oil prices and looking past troubling data on wholesale inflation.
   
In early trading, the Dow added 43.71, or 0.41 percent, to 10,836.29. Broader stock indicators rose. The Standard & Poor's 500 index was up 3.82, or 0.31 percent, at 1,240.22, and the Nasdaq gained 11.39, or 0.54 percent, to 2,102.71.
   
Investors had a mild response to a modest uptick in the Labor Department's producer price index, which is seen as an early signal of consumer-level inflation. While overall PPI for May grew 0.2 percent, core prices rose 0.3 percent to top economists' estimates of 0.2 percent.
   
Although the PPI data reinforced Wall Street's fear of higher interest rates in a slowing economy, stocks managed to recover from hefty losses in the prior session. On Monday, late-day selling pulled the Dow Jones industrials down nearly 100 points and left the Nasdaq composite index at a seven-month low -- off 10.9 percent from its recent high on May 8.
   
While Wall Street was more positive on the day's data, overseas stock markets roiled in concerns about rising interest rates hindering U.S. consumer demand for foreign-made products. Japan's Nikkei stock average plunged 4.14 percent to a two-year low, and stocks in India slid 4.4 percent to a 52-week low.
   
In earnings news, Goldman Sachs Group Inc. posted sharply better-than-forecast results for the second quarter, helped by strong investment banking and trading business. Goldman Sachs nonetheless slid $1.75 to $143.25.
   
Best Buy Co. said its profit swelled 38 percent to beat estimates as customers bought more big-ticket items and cost-cutting measures boosted its margins. Best Buy jumped $1.38 to $50.41.
   
The Russell 2000 index of smaller companies rose 5.58, or 0.82 percent, to 688.77.

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Dollar near 5-week highs against euro after US producer price data

LONDON - The dollar remained near five-week highs against the euro after US producer price data reinforced expectations that the US Federal Reserve will raise the cost of borrowing again at the end of this month.
   
Figures from the Labor Department showed US wholesale prices rising by a monthly 0.2 pct in May and those excluding food and energy increasing 0.3 pct. Though the rise in the headline producer price index was half the increase expected by Wall Street, the core rate advanced by more than the 0.2 pct forecast.
   
"The data didn't do anything to dispel the general theme of rising inflation concerns," said Ian Stannard, currency strategist at BNP Paribas.
   
Financial markets have over the past few weeks moved to price in another quarter-point increase by the Federal Reserve on June 29 because US inflation has remained stubbornly higher than expected.
   
That shift in market expectations has bolstered the dollar, as has the general volatility by this spike in US interest rate expectations. World equity markets have suffered renewed jitters over the past 24 hours or so.
   
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 pause by the Fed contrast with predictions of tighter monetary policy at the European Central Bank and the Bank of Japan,  prompting a sharp pullback in the value of the US currency.
   
Today's US retail sales news for May did little to dispel expectations that the US is suffering an economic slowdown. Retail sales rose only 0.1 pct during the month after a 1.7 pct drop in automotive sales.
   
Today's closely watched ZEW economic survey in Germany also did little to alter market forecasts that the ECB will raise its key refi rate another quarter point to 3.00 pct in August, even though it came in worse than expected.
   
Though the higher euro and firm commodity prices pushed the economic sentiment index down to 37.8 in May from 50 the previous month and expectations of a more modest decline to 45.0, the current economic sentiment index improved thanks to the "favourable development" of exports and industrial production.
   
Elsewhere, the pound was supported by the news that higher domestic energy bills pushed the headline rate of inflation in the UK back above the Bank of England's target level in May and to its highest level in seven months.
   
The office for National Statistics said the consumer price index rose by an annual rate of 2.2 pct in May, its highest since October 2005's 2.3 pct.
   
It was also the first time since November that the CPI was above the Bank of England's 2.0 pct target and may ratchet up expectations of an interest rate increase in August, despite a sizeable decline in the core rate. 

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The European Markets at 12.00 BST

London - UK blue chips remained depressed at midday, hovering near hefty late morning lows below the 5,500 level amid expectations for a further decline today on Wall Street, with the latest US PPI report due out, and after stronger than expected UK inflation data, dealers said.
   
At 11.50 am, the FTSE 100 index was 122.1 points lower at 5,498.8, just above the morning low of 5,488.2.
   
All the broader FTSE indices remained weak as well, with the FTSE 250 index shedding 247.0 points at 8,734.2.

Frankfurt - Shares were sharply lower in midday trade following Wall Street and Asia losses on persistent US interest rate concerns, as the US is seen lower this afternoon and as the ZEW German economic expectations missed forecasts, with the DAX this morning reaching six-months lows, dealers said.
   
At 11.34 am, the DAX 30 index was 90.69 points or 1.68 pct lower at 5,304.86, having moved between 5,287.16 and 5,337.68 so far this session.

Paris - Shares were sharply lower at midday after another broad sell-off set in in the wake of an overnight slide on Wall Street, amid rising concerns over interest rate hikes ahead of key US inflation data, dealers said.
   
At 12.43 pm, the main CAC-40 index was sharply down 101.64 points or 2.15 pct at 4,621.07, on trading volume of 2.24 bln eur.
   
Amsterdam - Shares were lower at midday following overnight losses on Wall Street with investors still jittery ahead of this week's US inflation data, dealers said.
   
At 11.57 am, the AEX was down 6.91 points or 1.64 pct to 414.95.

Brussels - Shares were lower late morning, impacted by overnight Wall Street weakness, with speciality materials group Umicore dipping sharply on falling commodity prices, traders said.
   
At 11.04 am, the Bel 20 was down 70.79 points or 2.01 pct at 3,451.15 -- with all stocks in the red.

Milan - Share prices were lower at midday, hit by overnight losses on US markets and ahead of the release of key US inflation figures, dealers said.
   
At 11.43 am, the Mibtel index was down 1.60 pct at 26,566 points and the S&P/Mib fell 1.45 pct to 34,910.

Madrid - Share prices were sharply lower in nervous midsession trade on inflation fears ahead of key US PPI data later this afternoon, with BBVA under pressure on fears that it is overpaying for its Texas bank acquisitions, dealers said.
   
At 12.50 pm, the IBEX-35 index was down 208.7 points or 1.89 pct at 10,822.7, after trading in a range of 10,817-10,909, on moderate volume of 2.4 bln eur.

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Asian shares close mostly down, Tokyo, Seoul at 7-month lows

HONG KONG - Share prices across the Asia-Pacific region ended sharply lower in most markets, with Tokyo and Seoul hitting seven month lows as investors sold on concerns about the US economy, dealers said.
   
Tokyo investors were spooked by a further sharp slump on Wall Street overnight and fears over the impact of rising US interest rates, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed down 614.41 points or 4.1 pct at 14,218.60, its session low. This was the weakest finish since Nov 16, 2005 when it ended at 14,170.87 and is the biggest single-day points loss since shortly after September 11, 2001.
   
The broader TOPIX index of all first-section issues ended down 52.59 points or 3.5 pct at 1,458.30, its low for the day.
   
"The market fell sharply, tracking losses on Wall Street, while a lack of inflows from overseas investors also weighed on investor sentiment here," said Toshihiko Matsuno, senior strategist at SMBC Friend Securities.
   
Overseas investors were net sellers for a 14th straight trading day.
   
Australian shares also finished sharply lower, reflecting the sell-off on global equity markets and lower base metal prices, dealers said.
   
They said selling weighed heavily on bank and resources stocks while the wider market also fell on risk aversion to equities.
   
The S&P/ASX 200 plunged 127.102 points or 2.56 pct to close at 4,838.9, the biggest one-day fall since the selling that hit world share markets following the terrorist attacks on the US in September 2001.
   
The benchmark indicator is now 525.6 points or 9.8 pct off the May 11 record high of 5,364.5.
   
Hong Kong shares fell sharply as investors cashed out of property and banking stocks amid persistent worries over interest rates, dealers said.
   
They said the mood was jittery following Wall Street's drop overnight and ahead of the release of key US economic data this week and speeches by Fed chairman Ben Bernanke.
   
At 3:28 pm the Hang Seng Index was trading at 15,265.72, down 355.72 points or 2.28 pct.
   
In mainland China, A-shares in Shanghai and Shenzhen closed mixed on lingering concerns over liquidity pressure, with banks and petrochemical producers losing ground, dealers said.
   
The Shanghai A-share Index slid 4.77 points or 0.29 pct to 1,627.85 on turnover of 18.12 bln yuan and the Shenzhen A-share Index was up 1.39 points or 0.33 pct at 416.50 on turnover of 11.73 bln yuan.
   
Seoul share prices closed at a seven-month low as foreign investors sold out of the market following Wall Street's weaker close, dealers said.
   
Nervous trading in Japan and other markets added to the negative tone, with investors fearing the outlook for the US economy, and trade was light, they added.
   
The KOSPI index closed down 35.98 points or 2.90 pct at 1,203.86, off a high of 1,218.39 and a low of 1,201.60.
   
Dealers say the index appears likely to test the 1,200-point level as investors await a clearer view of the US economy.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold slumps as hot money deserts commodities

LONDON - Gold prices slumped further in early afternoon London dealing as hot money continued to flee from commodities back towards the dollar and treasuries, pushing gold below the 600 usd mark, analysts said.
   
Spot gold was quoted at 587.00-587.80 usd, sharply down on the 606.85 seen in late New York trading overnight. Silver also fell sharply, quoted at 10.36-11.46 usd; platinum at 1131-1136 usd and palladium at 281.50-286.50 usd.
   
Gold failed to find significant buying interest, though its decline has been slowed by some physical buying, according to analyst James Moore of TheBullionDesk.com.
   
But the downward pressure has been irresistible. Overnight, an initially orderly decline picked up pace, though some technical stops kicked in once the 600 usd barrier was breached.
   
Moore said: "Further pressure is inevitable given the current mood with golds next test likely to be key chart support located at 585/578 usd.
   
Silver could also be heading for further declines, analysts said. Having failed to find significant support around the 100-day moving average last week, silver may be looking at a larger correction back to 9.90 usd before finding more significant support from technical factors, as well as investor and physical interest.
   
Copper and the other base metals will also play a large role in determining silver's direction in the coming days with another sharp move lower likely to accelerate the metals decline, Moore said.
   
Base metals were mixed, with LME copper for three month delivery down 5.17 pct to 6,780 usd a tonne while three-month zinc fell 8.11 pct at 3,059 usd.

LME three month lead fell 4.23 pct to 996 usd a tonne, tin was down 0.89 pct at 7,805 usd and nickel fell 8.17 pct to 17,975 usd.

Bonds edged upward, with the yield on the 10-year Treasury note slipping to 4.97 percent from 4.98 percent late Monday. 

Crude futures fell further as Tropical Storm Alberto posed little threat to refineries in the Gulf of Mexico. A barrel of light crude dropped $1.07 to $69.29 on the New York Mercantile Exchange.

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