US & World Daily Markets Financial Briefing 14-02-2006

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U.S. stocks mixed; retail strength sparks rate worry

       
NEW YORK - U.S. stocks rose modestly Tuesday as a jump in January retail sales confirmed the current strength of the economy, but also raised fears that interest rates have further to rise.
   
A fresh drop in crude-oil prices was lending some support.
   
The Dow Jones Industrial Average rose 34 points to 10,926. The Nasdaq Composite Index was up 5 points at 2,244 while the S&P 500 Index tacked on 1 point to 1,264.
   
The benchmark 10-year note was last down 10/32 at 99 3/32, with its yield at 4.62%, up from 4.586% in late trade Monday. Shortly after the data, the yield struck a three-month high of 4.624%.
   

Buffett to step down from Coke's board
   
Coca-Cola Co. tacked on 43 cents to $41.17, weathering a decision by financial investment guru Warren Buffett and J. Pedro Reinhard not to run for reelection to the company's board.
   
Buffett, the chairman and chief executive of Berkshire Hathaway, said he was leaving Coke to focus on Berkshire's acquisitions. He added that Berkshire Hathaway will maintain its equity stake in Coke.
   
Elsewhere on the Dow, shares of 3M rose $1.06 to $73.97 after the industrial
group raised its quarterly cash dividend and approved a share buyback of $2 billion.
   
Retailers in focus
   
Shares in Target Corp. dipped 24 cents to $54.30 after the discount retailer lowered the top end of its February same-store sales forecast, attributing its revised outlook to a fall-off in customer traffic in the Northeast due to a heavy snowstorm over the weekend.
   
Appearing to confirm the impact of the bad weather, weekly chain-store sales for the week ending Feb. 11 rose 3.3% compared with the year-ago period, but fell 0.4% on a week-over-week basis, according to a survey by the International Council of Shopping Centers and UBS Securities.
   
"This past week retail chain store sales were affected by two key factors - weather and the opening of the Olympics - as consumers directed their attention
to things other than shopping," said Michael Niemira, ICSC's chief economist.
   
Staying with retail, Circuit City Stores Inc. gained 46 cents to $24.79 after Citigroup upgraded the electronics retailer to buy from hold, saying it will benefit from strong digital television and video-game sales in 2006 and a shift to selling products with higher margin technology.
   

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Other stock standouts
   
In other broker action, shares of RealNetworks Inc. rallied 7.4% to $7.85 after Piper Jaffray raised its recommendation on the digital media services company to outperform from market perform.
   
The broker cites the strong performance of its Rhapsody digital music download service, an underappreciated gaming portfolio and solid cash reserves available for acquisitions and share buybacks. Valuation is also attractive relative to its online media peer group.
   
Qwest Communications Inc. rose 2.5% to $6.05 after the telephone operator posted adjusted quarterly earnings that topped analyst estimates, helped by a 1.3% rise in sales $3.48 billion. Denver-based Qwest said it was also the first time annual sales have risen since 2001.

Forex

Dollar mixed after data; ahead of Bernanke

      
NEW YORK - The dollar was mixed early Tuesday, following data showing unexpectedly robust U.S. retail sales and tighter inventories, as market participants awaited Ben Bernanke's Congressional debut as Federal Reserve Chairman on Wednesday.
   
Initially, the dollar shot higher against both the euro and yen, after the strong January retail sales data, but it later weakened against the yen, giving back a bit of the strength it picked up on Monday.
   
The dollar last off 0.09% at 117.39 yen, while the euro dropped 0.3% to $1.1877.
   
The Commerce Department reported that retail sales outpaced expectations and
rose a seasonally adjusted 2.3% in January.
   
Excluding the 3% gain in auto sales, seasonally adjusted retail sales rose 2.2% for the month. Overall, retail sales were the strongest since May 2004.
   
Economists surveyed by MarketWatch were expecting a rise of 0.9%. Retail sales excluding autos were also far stronger than the 0.8% expected.
   
Separately, the department said business inventories tightened in December as a 1.2% increase in sales outpaced inventory gains of 0.7%. The figures marked the biggest increase in sales since December 2004 and the biggest increase in inventories since January 2005.
   
The inventory-to-sales ratio fell back in December to the record low of 1.25 reached in October. The typical business had 38 days of sales on hand, down from 44 days in 2001.
   
Strong data generally supports a case for the Federal Reserve to continue lifting rates, a development that dollar proponents would welcome because it would preserve the dollar's attractive rates differential against the euro and yen. 
   

Bernanke is widely thought to be dovish on the subject of inflation, but he has promised continuity with the era of his predecessor Alan Greenspan, an inflation hawk.

"He [Bernanke] will be signaling at least the March rate hike is coming and probably will leave the door open for a May rate hike," Malpede said. Malpede said there is speculation that the Bank of England will have to cut rates, following weak consumer price data in the U.K., pointed toward slowing inflation.

The pound last was off 0.7% at $1.7313. The U.K. consumer price index rose 1.9% year-on-year in January, flat with a revised lower 1.9% figure in December. Economists were looking for a 2.1% CPI reading.

The euro was pressured by news that fourth-quarter gross domestic product data in Germany was shown to be unchanged from the third quarter, according to Federal Statistical Office figures. For the euro zone as a whole, the economy rose 0.3% in the fourth quarter from the third quarter and 1.7% year-on-year, Eurostat said. Both German and euro-zone figures missed consensus estimates by 0.1%.

Europe at a Glance

London

For a list of FTSE risers and fallers at 15.00 GMT, click here

Frankfurt

German shares down slightly as auto investors take profits

At 2.27 pm, the DAX 30 index was 0.49 points or 0.01 pct lower at 5,755.84, having moved between 5,735.52-5,786.69 so far this session. The MDAX was at 8,112.24, down 41.80 points or 0.51 pct, while the TecDAX was at 712.12, up 4.67 points or 0.66 pct. The DAX futures contract was at 5,759.50, down 6.00 points or 0.10 pct, while bund futures were at 120.11, down 0.04.

ThyssenKrupp was the worst performer overall, giving up yesterday's gains after JP Morgan reiterated its 'neutral' rating on the shares and its 19.19 eur price target. The steel conglomerate's shares declined 0.40 eur or 1.95 pct to 20.10.
   
Volkswagen lost 0.63 eur to 57.64. The shares rose 5.18 pct yesterday as investors cheered press reports outlining demands the car maker will issue to its works council in order to implement its planned restructuring programme.
   
Other German car makers and transport issues also declined after rising Monday.
   
BMW lost 0.69 eur to 39.94, DaimlerChrysler lost 0.44 eur to 49.56 and Continental fell 1.11 eur to 85.29. Commerzbank lost 0.31 eur to 29.11 after its comdirect unit reported a disappointing set of full year results, mainly due to high operating costs.

Deutsche Boerse led all gainers, up 1.76 eur or 1.76 pct to 102.04 as investors bought into European exchanges in expectation of strong fourth quarter sales figures from rival Euronext, dealers said.
   
Deutsche Telekom climbed 0.18 eur to 13.66 after rival France Telecom published its full-year results showing net profit nearly doubled, and announced a 2006 dividend increase.

Paris

Paris shares lower late afternoon; auto stocks weigh after Michelin outlook
 

At 3.55 pm, the CAC-40 was down 14.41 at 4,942.95 on volume of 3.3 bln eur.
On the Matif, February CAC-40 futures were trading 15 points weaker at 4,943.5.

Michelin posted the sharpest losses on the CAC-40 after in-line full-year results were accompanied by disappointing margin guidance for 2006.
   
Michelin reported a 5 pct rise in operating profit to 1.368 bln eur but warned an anticipated 11 pct increase in raw materials costs this year will result in an operating margin "equivalent" to that of 2005.
   
Selling spread to the wider auto sector, with Renault down 2.30 or 2.74 pct at 81.60 while Peugeot slid 0.95 or 1.90 pct at 49.10.

France Telecom led gainers, up 0.55 or 2.96 pct at 19.14 after 2005 net profit nearly doubled to 5.7 bln eur, and as the group said it expects to hike its dividend to 1.2 eur in 2006 from 1.0 in 2005.

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Asia at a Glance

Asian shares close higher, Tokyo rebounds on bargain-hunting

       
HONG KONG - Share prices across the Asia-Pacific region finished higher with Tokyo stocks rebounding from yesterday's heavy sell-off, dealers said.
   
Sentiment was buoyed by many investors taking the view that yesterday's sell-down was overdone, they added.
   
The Nikkei 225 Stock Average index ended the day up 307.21 points or 1.9 pct at 16,184.87, its high for the session. Yesterday, the blue-chip marker lost 380.17 points or 2.3 pct to close at 15,877.66.
   
The broader TOPIX index of all first-section shares gained 17.23 points or 1.1 pct at 1,635.24, also its high for the session.
   
Shares had moved in and out of negative territory in early trading, investors having been reluctant to take new positions because of concerns about possible increases in interest rates here and in the US, dealers said.
   
But market participants eventually came to believe that fierce rate increases will not occur, given the present state of the US and Japanese economies, dealers said.
   
"Share prices bounced off lows on the back of many bargain-hunters after the
Nikkei fell sharply yesterday," said Hitoshi Yamamoto, president and chief fund
manager at Commerz International Capital Management (Japan).
   
Share prices in Australia closed higher with investor sentiment lifted after yesterday's sell-off on falling commodity prices, with strong support for large resource stocks ahead of their profit reports, dealers said.
   
They said the key S&P/ASX 200 index rebounded sharply early in the trading session, despite commodity prices falling again in overnight trading.
   
Dealers said investors supported leading resources BHP Billiton and Rio Tinto with BHP Billiton expected on Wednesday to report a record half-year net profit of about 4.4 bln usd.
   
The S&P/ASX 200 gained 47.1 points or 0.98 pct to close at the day's high of 4,864.2, but remained below the record close of 4,956.7 set on Feb 1.
   
In Hong Kong, share prices were trading higher in the afternoon on bargain-hunting following yesterday's losses, dealers said.
   
But trading overall was cautious ahead of the testimony tomorrow of the new Federal Reserve chairman Ben Bernanke and following losses on overseas markets overnight.
   
At 3:40 pm the Hang Seng Index was up 114.21 points or 0.75 pct at 15,426.30.
   

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In mainland China, A-shares in Shanghai and Shenzhen closed higher on some
renewed buying interest in afternoon trade with retailers and automakers snapped up, dealers said.
   
The Shanghai A-share Index rose 7.04 points to 1,349.22 on turnover of 10.91 bln yuan and the Shenzhen A-share Index was up 2.69 points at 329.37 on turnover of 6.94 bln yuan.
   
Share prices in Seoul closed higher, reversing the previous session's decline and rebounding from a more than one pct loss in early trade, as large cap telecom and bank stocks led the rise, dealers said.
   
The market remained weak throughout the session, on Wall Street's overnight
setback and heavy foreign investor sell-offs, with the index threatening the 1,300 point-level at one stage.
   
But intensified program buying toward the close led the market into positive territory, with solid gains in major Asian markets also helping investor sentiment.
   
The KOSPI index closed up 7.42 points or 0.56 pct at 1,328.21.

Asian Bourse Round-up

For a full list of closing figures, click here

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Commodities

Gold futures rebounded from a $26 loss over the past two sessions. The
benchmark April contract was last up $3.50 at $545.70 an ounce.
   
Crude-oil futures fell in early trading as traders shrugged off the latest
news on Iran's nuclear research program to focus on fundamentals, notably the
current high level of U.S. inventories.
   
Crude for March delivery was down 74 cents at $60.50 a barrel in New York
trading.

Precious Metals Summary - London, 1530 GMT