US & World Daily Markets Financial Briefing 13-07-2006

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Stocks slide as oil reaches new record

NEW YORK - Stocks fell for a second straight session Thursday as soaring oil prices and discouraging analyst remarks on Wal-Mart Stores Inc. intensified concerns about consumer spending.
   
The jump in crude prices exacerbated Merrill Lynch's downgrade of Wal-Mart on fears that higher lending rates and gasoline prices would increasingly pressure consumer spending. On Wednesday, more gains for oil and negative comments on Dell Inc. sent the Dow Jones industrials plunging 121 points.
   
Worries about inflation and economic growth overshadowed a slight rise in weekly unemployment claims and positive earnings news from PepsiCo Inc. Sales of non-carbonated beverages boosted the soft-drink maker's second-quarter profit by 14 percent to top Wall Street estimates.
   
In the first hour of trading, the Dow Jones industrial average slumped 47.54, or 0.43 percent, to 10,965.64. Broader stock indicators were also lower. The Standard & Poor's 500 index was down 4.51, or 0.36 percent, at 1,254.09, and the Nasdaq composite index dropped 18.97, or 0.91 percent, to 2,071.27.
   
Bonds continued gaining, with the yield on the 10-year Treasury note sliding to 5.09 percent from 5.1 percent late Wednesday.

Stocks in focus
   
Tribune Co. reported a 62 percent profit decline - largely in line with analyst forecasts - due to the losses at television stations it's planning to sell.
   
Fellow S&P 500 components PepsiCo and Marriott also are due to report results. Dell Computer is due to make a "major pricing initiative."
   
On the mergers-and-acquisitions front, EMI Group shares tumbled 9 percent in London, following a European court annulling the European Commission's approval of Sony-BMG's recorded music venture. EMI has been in talks with Warner Music, with each trying to buy the other.
   
Britain's Aviva agreed to buy AmerUS Group for $2.9 billion, or $69 a share. The companies had announced last week that they were in takeover talks.

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Major currencies steady ahead of BoJ meeting Friday, Bernanke speech Weds

LONDON - Major currencies continued to trade in a tight range as investors remain sidelined ahead of tomorrow's interest rate decision in Japan and US Federal Reserve chairman Ben Bernanke's testimony next week.
   
UBS currency analyst Daniel Katzive said financial markets are also "casting a nervous eye towards events in the Middle East", amid news that Israeli air raids hit Beirut's main airport this morning, propelling crude oil prices to new record highs.
    
Better-than-expected US trade data yesterday failed to give the dollar much of a lift, largely because higher oil prices make a sustained improvement unlikely.
   
Looking ahead, market players are wary of adopting new positions ahead of US inflation data and Bernanke's testimony on Wednesday next week, which should give some clue as to how much further US interest rates will rise.
   
A more hawkish message from the Fed chairman or firmer US CPI data could revive expectations for higher interest rates to the benefit of the dollar, Katzive said.
   
Markets reacted little to news this afternoon of worse-than-forecast US weekly jobless claims numbers, with the dollar inching just marginally lower from earlier levels.
   
Jobless claims rose by 19,000 to 332,000 last week, figures showed, above forecasts for claims of around 318,000.
   
Meanwhile, focus for the yen centres on tomorrow's key Bank of Japan meeting, where rate-setters are widely expected to take interest rates above zero for the first time in over five years.
   
The market is already pricing in a 25 basis point rate hike and focus is likely to centre on the BoJ's accompanying statement for hints on plans for any future increases.
   
Elsewhere, the pound edged higher after the UK Treasury announced the appointments of Tim Besley and Andrew Sentance to the Bank of England's Monetary Policy Committee from Sept 1 and Oct 1 respectively.

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The European Markets 12.00 BST

London - Leading shares remained weak midday as unfolding events in the Middle East and concerns surrounding US and UK corporate profitability prompted some profit taking, although trading volumes were low, dealers said.
   
At 11.55 am, the FTSE 100 index was off 62.8 points at 5,797.7, just above its morning session low of 5,791.3, with the broader FTSE indices also weaker.

Frankfurt - Shares were lower in midday trade as Dow futures point to a lacklustre start on Wall Street and after the Nikkei index closed 0.87 pct lower, amid high oil prices that are expected to continue to weigh on the market, dealers said.
   
At 11.47 am, the DAX 30 index was 79.67 points or 1.41 pct lower at 5,558.15, having moved between 5,541.66 and 5,609.13 so far this session. The MDAX was at 7,727.51, down 90.28 points or 1.15 pct, while the TecDAX was at 626.94, down 13.82 points or 2.16 pct.

Paris - Shares were sharply lower in midsession trade as oil prices, driven up by geopolitical fears to record levels, hit investor confidence already weakened by an overnight drop on Wall Street, dealers said.
   
At 12.57 pm, the main CAC-40 index was 66.48 points or 1.35 pct lower at 4,875.66, on a solid trading volume of 2.04 bln eur.

Amsterdam - Shares were lower in early afternoon trade, led by heavyweight financials, ahead of an expected lower opening on Wall Street amid rising crude oil prices, dealers said.
   
At 1.33 pm, the AEX was down 5.20 points or 1.18 pct to 435.23, after opening at its intraday high of 438.72 and just off a low of 435.02.
   
Brussels - Shares were down in late morning as Wall Street losses and concerns about the Middle East made investors pessimistic, traders said.
   
At 11.15 am, the Bel 20 was 43.34 points or 1.17 pct lower at 3,674.75.

Milan - Share prices were lower at midday trade, depressed by geopolitical tensions in the Middle East and by rising crude oil prices, while FastWeb outperformed the market after in-line quarterly results, dealers said.
   
At 12.43 pm, the Mibtel index fell 0.79 pct to 27,612 points and the S&P/Mib was down 0.87 pct at 35,984, while volumes stood at 1.41 bln eur.

Madrid - Share prices were lower midday in cautious trade, in line with losses throughout Europe on the back of soaring oil prices and political tensions in the Middle East, with telecoms taking a hit, dealers said.
   
At 12.36 pm, the IBEX-35 index was down 133.6 points at 11,400.9, after trading in a range of 11,487-11,479, on turnover of 1.535 bln eur.
   
Stockholm - Shares were lower in early afternoon trade with indications of a weak start on Wall Street adding to nervousness around spiking oil prices, rising tension in the Middle East and the forthcoming second-quarter reporting season, brokers said.
   
At 1.20 pm, the OMX Stockholm index was down 1.08 pct at 300.52 and the OMX Stockholm 30 down 1.14 pct at 927.21. Turnover was 6.172 bln skr.

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Asian shares close lower, Tokyo cautious ahead of BoJ decision

HONG KONG - Shares across the Asia-Pacific region closed lower, with Tokyo falling as the Bank of Japan (BoJ) started a two-day meeting widely expected to result in an interest rate hike, dealers said.
   
Tokyo shares ended lower after cautious trading, with most market players awaiting the outcome tomorrow of the meeting of the BoJ's policy board, dealers said.
   
The Nikkei 225 Stock Average closed 151.37 points or one pct lower at 15,097.95, after moving between 15,053.61 and 15,370.35.
   
The broader TOPIX index of all first-section issues shed 12.66 points or 0.8 pct at 1,551.03. The index moved between 1,542.04 and 1,570.55.
   
"The market was directionless today," said Koichi Ogawa, chief fund manager at Daiwa SB Investments. "Investors were adopting a wait-and-see stance before the Bank of Japan releases its critical decision on interest rates tomorrow."
   
Australian shares finished lower as investor sentiment weakened following a strong rise in employment in June, which boosted inflation concerns, dealers said.
   
They said banking stocks fell after a 52,000 jump in employment in June raised expectations the Reserve Bank of Australia will raise official cash rates by 25 basis points in August.
   
The S&P/ASX 200 dropped 43.7 points or 0.85 pct to close at 5,084.6.
   
The benchmark indicator closed at the day's low and below a high of 5,127.6.   
Hong Kong shares were lower in afternoon trade on talk that China's central bank might raise interest rates soon, dealers said.
   
They said a big slide on Wall Street overnight also kept investors cautious.
   
At 3:29 pm the Hang Seng Index (HSI) fell 182.78 points or 1.11 pct to 16,339.43.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower as investors chose to lock in gains after recent lackluster performances, with banks and metal plays under pressure, dealers said.
   
The Shanghai A-share Index plunged 88.52 points or 4.84 pct to 1,740.92 and the Shenzhen A-share Index was down 25.55 points or 5.49 pct at 439.98.
   
Seoul shares ended lower as foreign investor spot and futures selling further weakened sentiment ahead of the release tomorrow of Samsung Electronics' earnings, dealers said.
   
Samsung Electronics is the market's largest stock by capitalization and investors will be focusing on the company's guidance for the second half, having already priced in a negative second quarter.
   
Sharp losses in major Asian markets - Japan and China in particular - also pressured sentiment.
   
The KOSPI index closed down 11.67 points or 0.90 pct at 1,285.02, after moving between 1,299.07 and 1,273.13.

Asian Bourse Round-Up

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Gold rises on escalating Middle East tensions

LONDON - Gold prices traded higher in Europe, after dipping earlier in Asian trade, as the precious metal reacted to the escalating tensions in the Middle East and as oil prices hit new record highs.
   
At 12.14 am, spot gold, which earlier hit a low of 644.50 usd, was quoted at 651.75 usd against 649.60 at the time of the COMEX market close in New York yesterday.
   
Other precious metals were also higher. Spot silver was at 11.62 usd against 11.54 usd, platinum was at 1,250.50 usd from 1,251.00 usd and palladium was at 329.50 usd against 326.00.
   
Gold hit a six-week high of 655.40 usd yesterday amid safe haven buying after the bomb attacks in India, the biggest bullion consumer, on Tuesday, which left more than 180 people dead.
   
Rising geopolitical tensions over Iran, North Korea and the Middle East also leant support, as did surging oil prices and strong base metals, which broke key technical levels yesterday.
   
Profit-taking set in during the Asian session this morning before news that Israeli fighter jets launched a series of air strikes across Lebanon and sent warships into Lebanese waters, pushing gold higher in Europe.
   
UBS Investment Bank analyst John Reade said the recent recovery in gold, which has rebounded from a three-month low of 543 usd in mid-June, has taken investors by surprise. He urged caution going forward.
   
Model-driven funds have been the key buyers in the past two days, said Reade, who added that for gold to trade back towards recent highs other buyers need to enter the fray, and there has been little evidence of this so far.
   
"For now we still remain cautious with the Bank of Japan (interest rate) decision tomorrow, US CPI and the Fed chairman's testimony to Congress next week potential pot holes in the road to gold's further recovery".
   
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.
   
John Meyer, analyst at Numis Securities, said gold has been firming since the June falls and that this upward trend should continue, led by "rising demand, some interruptions to mine supply and central bank activity".

Crude futures lingered near a new intraday record amid escalating political tension in Iran and Lebanon. A barrel of light crude rose as high as $75.89 earlier, and recently was up 82 cents at $75.77 on the New York Mercantile Exchange.

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