US & World Daily Markets Financial Briefing 15-06-2006

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Stocks open on the plus side

NEW YORK - Stocks advanced for a second session Thursday as strong earnings from Bear Stearns Cos. and mild economic data helped Wall Street regain its footing after several weeks of hefty losses.
   
Bear Stearns was the latest of its peers to post upbeat second-quarter results on improved trading activity during the market's runup earlier this spring. Meanwhile, rival Goldman Sachs Group Inc. was engaged in a takeover battle for Associated British Ports Holdings PLC.
   
A late-day rally Wednesday catapulted the Dow Jones industrials more than 110 points despite consumer inflation data almost guaranteeing another interest rate hike from the Fed later this month. However, that clarity appeared to motivate investors who had been confused about the interest rate outlook.
   
In the first hour of trading, the Dow Jones industrial average jumped 51.12, or 0.47 percent, to 10,868.04.
   
Broader stock indicators also rose. The Standard & Poor's 500 index was up 7.08, or 0.58 percent, at 1,237.12, and the Nasdaq composite index gained 20.37, or 0.98 percent, to 2,106.37.
   
Financials will be in focus as Joseph Perella, the ex-Morgan Stanley banker, announced the formation of his new advisory firm, backed by $1 billion in capital.
   
Goldman Sachs Group Inc. was engaged in a tussle with a consortium of Macquarie Bank and 3i Group to win control of Associated British Ports. Goldman raised its bid in the ports company to $4.75 billion only a day after agreeing an offer, while the Macquarie/3i consortium told AB Ports in reply that they may match that bid.
   
Philips Electronics agreed to buy Intermagnetics General Corp. for $1.3 billion, or $27.50 a share, in cash. The deal is at a 29 percent premium to Wednesday's close.
   
Elsewhere, General Mills Inc. could draw attention after the cereal maker lifted its 2006 profit estimate. Citigroup wasn't impressed however, downgrading it to hold from buy, citing concerns over future earnings growth.

"The news becomes disappointing beyond the initial headlines as General Mills goes on to give somewhat cryptic and incomplete comments regarding the firm's outlook," Citigroup said.

"Although General Mills operating fundamentals continue to strengthen, earnings growth at the company in 2007 will likely be hampered by items below the operating line, with the substantial increase in interest expense representing the largest headwind."

WASHINGTON - Industrial production unexpectedly fell in May, reflecting weakness in manufacturing, as the economy flashed more signals of a spring slowdown.
   
The Federal Reserve reported Thursday that output at the nation's factories, mines and utilities dropped by 0.1 percent last month following an increase of 0.8 percent in April.
   
The weakness last month reflected a slowdown of autos and auto parts as the U.S. auto industry continued to struggle with soaring gasoline prices that have sapped demand for sport utility vehicles.

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Dollar lower as portfolio flows into US hit 12-month low

LONDON - The dollar drifted lower after news that portfolio flows into the US shrank to their lowest level in 12 months in April. The US Treasury said portfolio capital flows to the US slowed sharply to 46.7 bln usd in April from an upwardly revised 70.4 bln usd in March.

Significantly, the inflow was not enough to cover the trade deficit of 63.4 bln usd over the same month.

With the dollar's run from expectations of a US rate increase at the end of June appearing to be reaching an end, investors reacted negatively to the data.

The news was not all one way for the dollar, however. Earlier, it emerged that US initial jobless claims fell to their lowest level in nearly four months last week.

The Labor Department said jobless claims dropped to 295,000 last week, a decrease of 8,000 from the previous week. It marked the second straight week that claims have fallen, pushing the total to the lowest level since the week of February 18.

Analysts at BNP Paribas said the failure of the dollar to gain more ground on the back of expectations of an interest rate increase shows sentiment is shifting away from the focus on rates.

The inflation numbers and hawkish Fed have prompted the market to fully price in a June rate increase with a 46 pct probability placed on another rise in August, they said.

Elsewhere, the pound edged up after stronger than expected retail sales data for May which suggested that UK interest rates may rise in 2006, possibly in August.

Figures from the office for National Statistics revealed that retail sales, which accounts for about a third of total household spending, rose 0.5 pct on a seasonally-adjusted basis in May from April, in line with forecasts.

Separately, news from the European Central Bank that interest rates in the area remain low even after last week's rate increase, helped to prop up the euro.

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The European Markets at 12.00 BST

London - Leading shares pushed higher at midday as investors swallowed their fear, resigned themselves to another Fed rate rise and went buying again, snapping up recently beaten down mining, oils and financial stocks, dealers said.
   
By 12.00 noon, the FTSE 100 index was up 78.2 points at 5,585.0, while the broader indices were also back in demand.
   
Volume was robust, with 1.3 bln shares changing hands in 174,690 deals, an encouraging sign that the rally may have legs, according to traders.

Frankfurt - Shares were higher late morning with Deutsche Boerse and Fresenius Medical Care leading the way among advancers in quiet and low volume trading as most market participants head off for a long weekend, dealers said.
   
At 11.59 am, the DAX 30 index was 80.67 points or 1.52 pct higher at 5386.66, having moved between 5,380.48 and 5,400.30 so far this session.
   
The MDAX was at 7,383.80, up 221.62 points or 3.24 pct while the TecDAX was at 611.31, up 22.93 points or 3.90 pct. The DAX futures contract was at 5,388.00, up 67.00 points or 1.26 pct, while bund futures were at 116.50, down 0.38.

Paris - Shares were higher midday as market sentiment was lifted by sharp overnight gains on Wall Street, dealers said.
   
At 12.30 pm, the main CAC-40 index was 56.68 points or 1.23 pct higher at 4,671.76, on heavy volume of 2.12 bln eur. Of the CAC-40 shares, 33 were higher and 7 were lower. On the Matif, June CAC-40 futures were trading up 62.0 points at 4,678.0.

Milan - Share prices were higher in midday trade, underpinned by overnight gains on US markets, while Saipem soared as the stock continues to rebound, dealers said.
   
At 12.13 pm, the Mibtel index was up 1.30 pct at 26,888 points and the S&P/Mib added 1.09 pct to 35,230.
   
Saipem rose 3.87 pct to 16.90 eur after winning 1 bln usd in new orders. Centrosim increased its rating to 'neutral' from 'sell' with an 18.1 eur price target.

Amsterdam - Share prices were higher in early afternoon trade, extending yesterday's rebound from sharp losses earlier in the week and ahead of an expected higher opening on Wall Street.
    
At 1.16 pm, the AEX index was up 6.41 points or 1.55 pct at 419.39, after opening at a low of 415.82 and off a high of 420.55.

Zurich - Share prices were sharply higher in late morning trade tracking sharp overnight gains on Wall Street, with today's decision by the SNB to raise interest rates by 25 basis points widely expected and hence having little impact, traders said.
   
At 11.50 am, the Swiss Market Index was 122.69 points or 1.7 pct higher at 7,293.72, and the Swiss Performance Index up 97.97 points at 5,684.64.

Athens - Shares extended their gains in late afternoon trade, led by Piraeus Bank and National Bank, as sentiment was lifted by an overnight advance on Wall Street and gains on European markets, with several stocks technically rebounding from recent heavy selling pressure, brokers said.
   
At 2.15 pm the ASE general index was up 3.7 pct at 3,505.6, with advancers outnumbering decliners 260 to 13. The blue chip index was also up 3.7 pct to 1,918.8. Mid caps were up 4.5 pct at 3,829.9 and small caps had jumped 6.4 pct to 670.

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Asian shares close mostly higher on Wall St, higher metal prices

HONG KONG - Shares across the Asia-Pacific region closed mostly higher, following Wall Street's rebound overnight and higher metal prices, dealers said.
   
Tokyo shares closed higher, extending yesterday's recovery, as investors took heart from the sharp rebound in the US, Japanese dealers said.
   
Sentiment was also given a boost by news that foreign brokerages had turned net buyers again, for the first time in 16 trading days.
   
However, the upside was capped by the same worries about rising interest rates and weakening demand in the US economy that have caused equities markets around the world to slump sharply in recent weeks.
   
The Nikkei 225 Stock Average closed up 161.20 points or 1.1 pct at 14,470.76 after touching a high of 14,593.85.
   
The broader TOPIX index of all first-section issues rose 19.84 points or 1.35 pct to 1,485.98, off a high of 1,496.10. 
      
Australian shares finished higher, boosted by higher metal prices as well as Wall Street's recovery, dealers said.
   
They said index-leading resource companies BHP Billiton and Rio Tinto pushed the wider market higher but major banking stocks fell on continuing inflation fears in the US.
   
The S&P/ASX 200 rose 18.9 points or 0.39 pct to close at 4,869.7.
   
The benchmark indicator closed off the day's high of 4,906.7 and above the low of 4,851.0.
   
Hong Kong shares also benefitted from higher commodity prices, with investors moving into oil, other commodities and blue chips, dealers said.
   
They said sentiment was boosted by Wall Street's rebound, which brought bargain hunters into the market.
   
At 3.28 pm the Hang Seng Index was trading at 15,378.31, up 130.39 points or 0.86 pct.
   
In mainland China, A-shares in Shanghai and Shenzhen closed slightly higher on limited bargain-hunting, with property developers and trading companies getting snapped up amid fears of further credit-tightening programs, dealers said.
   
The Shanghai A-share Index added 2.60 points or 0.16 pct to 1,612.23 and the Shenzhen A-share Index was up 0.75 points or 0.18 pct at 413.31.
   
Seoul shares defied the trend across the region, closing slightly lower and  reversing a solid rebound in the previous session as profit-taking set in, sparked by inflation fears, dealers said.
   
The market opened firm in a knee-jerk reaction to the recovery on Wall Street, but soon lost momentum as foreign investors dumped both spots and futures, triggering massive program selling.
   
The KOSPI index closed down 2.33 points or 0.19 pct at 1,219.40, after moving between 1,239.86 and 1,213.09.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold recovers ground on physical demand

LONDON - Gold prices recovered ground in early afternoon London trading as physical buyers returned to the market.
   
At 2.50 pm in London, spot gold was quoted at 574.75-575.75 usd, with silver at 10.12-10.22 usd; platinum at 1,160.5-1,165.5 usd and palladium at 94.50-300.50 usd.
   
Yesterday, gold finished in New York trading at 662 usd, but after market trade saw the metal fall back further to 553 usd in reaction to the Beige Book elease.
   
Base metals were mixed, with LME copper for three-month delivery up 1.36 pct to 6,690 usd a tonne while three-month zinc fell 0.17 pct to 2,995 usd. LME three-month lead fell 1.76 pct to 950 usd a tonne, tin was up 1.95 pct  to 7,850 usd and nickel rose 0.52 pct to 18,295 usd.

Bonds slumped, with the yield on the 10-year Treasury note up to 5.09 percent from 5.06 percent late Wednesday. However, the continued inversion of short- and long-term yields signaled continued investor expectations of a slowing economy.
   
Crude futures saw another day of gains after the government reported a larger-than-expected drop in U.S. oil reserves as refineries stepped up output to meet summer gasoline demand. A barrel of light crude climbed 47 cents to $69.61 on the New York Mercantile Exchange.

BP does not expect oil to drop below 40 usd/barrel before 2010

BERLIN - BP plc does not expect the price of oil to drop below 40 usd a barrel before 2010, said BP's deputy chief economist Christof Ruehl, presenting the company's yearly report in Berlin.
   
In the short-term, there is little chance the price will fall below 60 usd per barrel, Ruehl predicted.
   
He said the prevailing high oil price is not a result of short supply but of a bottleneck in processing. He said world energy supplies are not at any risk in the foreseeable future. 

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