US & World Daily Markets Financial Briefing 16-08-2006

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Stocks are higher in early trading

NEW YORK - Stocks climbed higher in early trading as a decline in core retail price data for July supported the tame inflation outlook provided the prior sessions wholesale price data.
   
In the opening minutes, the S&P 500 gained 1.78 points to 1,287.36, and the Nasdaq hiked up 11.07 points to 2,126.08. The Dow industrials rose 14.44 points to 11,244.70.
   
Core consumer inflation eased back in July, rising just 0.2 percent after four months of 0.3 percent gains, the Labor Department said Wednesday. Core prices - which exclude food and energy costs - were expected to rise 0.3 percent according to a MarketWatch survey of economists. Meanwhile, soaring energy costs pushed the total CPI up 0.4 percent in July, as expected.
   
New construction of U.S. houses retreated in July, the fifth decline in the last six months, the Commerce Department estimated Wednesday. Starts fell 2.5 percent in July to a seasonally adjusted 1.80 million annualized units, weaker than the 1.82 million pace expected by economists surveyed by MarketWatch.

Starts of new single-family homes fell by 2.3 percent to a 1.45 million in July, while starts of large apartment units fell 3.4 percent to 343,000. Building permits, a leading indicator of housing construction, plunged 6.5 percent to a seasonally adjusted annual rate of 1.75 million.
   
Stocks in focus

Applied Materials erased earlier pre-open gains to trade down 9 cents at $15.60 on Inet. The chip equipment maker reported late Tuesday a 39 percent profit rise for the third quarter. The company said it benefited from a wave of factories coming online and the proliferation of consumer electronic devices.
   
Among other chip equipment makers, KLA-Tencor slipped 41 cents to $42.37 on Inet.
   
Elsewhere in technology, Qualcomm climbed 2.1 percent to $36.20 on Inet after Merrill Lynch added the wireless technologies company to its Focus 1 list, citing attractive valuation, expectations of strong earnings growth and cash flow generation and to take advantage of third-generation wireless network deployment.
   
After the close, Hewlett-Packard is due to report results. Analysts are expecting the computer maker run by Mark Hurd to report a 32 percent increase in its earnings per share and a 5 percent growth in revenue for its third quarter. The stock, a component of the Dow industrials, tacked on 19 cents, or 0.6 percent, to $34.18 in pre-open trading on Inet.
   
Abercrombie & Fitch shot up to $59.62 on Inet after reporting a better-than-forecast 14% profit rise in the second quarter, with the teen-clothing retailer also bettering Wall Street's 2006 guidance.
   
Big Lots, the close-out retailer, rallied more than 7 percent to $19.15 on Inet after it also topped second-quarter profit forecasts and raised its 2006 guidance.
   
Meanwhile, PetSmart slumped more than 5 percent to $22.11 on Inet after the pet-supplies retailer issued third-quarter and full-year earnings forecasts that were below expectations.
   
Cosmetics firm Estee Lauder largely met forecasts with a 33 percent profit decline on a 5 percent revenue rise in the fourth quarter. The company has suffered from a recent stock price pullback in the wake of tighter security rules in U.S. and U.K. airports.

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Dollar slumps as US inflation proves benign, growth appears to cool

LONDON - The dollar slumped after news of benign inflationary pressures in the US further weighed on the chances of a US rate hike over the coming months.
   
The currency's falls accelerated when it was also revealed that the property market in the US is faltering. The twin factors of softer inflation and slowing growth are likely to persuade US rate setters to keep monetary policy unchanged.
   
The euro nudged up over half a cent after the data, to levels in the mid-1.28 usd area.
   
Today's figures were key as the jury is still out on whether US rate setters will resume hiking interest rates. The Fed's run of 17 rate hikes came to an end last week with the benchmark rate at 5.25 pct. The door remains open to one more rate hike, however.
   
The much awaited US CPI data came in below expectations, with the core rate dropping to 0.2 pct in July from 0.3 pct in June. The headline CPI rate, meanwhile, rose by 0.4 pct in line with expectations.
   
That aside, there was more bad news for the dollar when the Commerce Department reported that construction of new homes fell in July for the fifth time in the past six months, providing further evidence that the once-booming housing market is slowing.
   
Today's figures come on the heels of soft producer price figures yesterday and all the signs now appear to point in the same direction -- that US interest rates are unlikely to rise any time soon.
   
Elsewhere, the pound came back after an initial dip on the back of news that the Bank of England decision to hike interest rates earlier this month was not unanimous and that jobless levels in the country have risen.
   
Partly offsetting the impact on the early drop, however, was the fact that wage pressures were up slightly.
   
John Butler, an economist at HSBC, said the rate-setting panel appears to be on a tightening bias, although near term hikes to curb inflation could eventually be replaced by rate cuts to support growth.
   
Many observers predict another quarter point hike in November, taking the benchmark rate to 5.00 pct.
   

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At 12.44 GMT, the FTSE 100 index was 17.8 points lower at 5,880.1, well above the midmorning low of 5.848.7, having reversed from an early peak of 5,902.5.
   
Ex-dividend factors, meanwhile, took nearly 15 points off the UK blue chip index with BT Group, Barclays, Standard Chartered, RBoS, and Aviva all lower as a result.
   
The broader FTSE indices were all firmer, aside from the FTSE All Share index. Volume was better than of late, with 1.279 bln shares changing hands in 182,800 deals.
   
Frankfurt

At 12.50 GMT, the DAX 30 index was up 32.5 points or 0.6 pct at 5,810.40, having traded between 5,764.8 on the downside and its current level.
   
The MDAX was at 8,080.40, up 102.5 points or 1.29 pct, while the TecDAX was at 644.89, up 6.12 points or 0.97 pct.
   
The DAX futures contract was at 5,818.00, up 8.00 points, while bund futures were at 116.50, up 0.16 points.
   
The market was calm for the first half of today's session but took off following the release of US data which was seen as further proof that US inflation is under control.
   
As it was SAP remained top of the leader board with traders attributing strength to support levels at 130 eur and 142 which have held after being tested recently, and a delayed reaction to yesterday's Dresdner Kleinwort reiterated 'buy' rating and 210 eur price target. The shares stood at 148.58 eur, a gain of 5.1, or 3.5 pct.
   
Elsewhere, TUI recovered some of its recent losses after AXA confirmed that its stake in the shipping and tourism conglomerate now stands at 5.07 pct.
   
Dealers thought that AXA might be positioning itself ahead of a potential bid for the group. The shares rose 0.14 eur to 14.65.
 
Amsterdam

At 11.48 GMT, the AEX was up 0.12 point or 0.03 pct at 461.37, off a low of 460.11. Government bonds traded down, while the euro stood at 1.2781 usd, slightly down from 1.2783 usd late yesterday.
   
Crucell led gainers, up 7.13 pct to 17.29 after analysts said they expect news from the WHO in the very near future regarding Quinvaxem, Crucell's new vaccine against diphtheria, tetanus, pertussis, hepatitis B and flu type B, dealers said.
   
Staffing stocks performed well, with Vedior up 2.96 pct to 13.93 eur, Randstad 4.14 pct higher at 40.76 and USG People gaining 3.61 pct to 51.60 eur, after a report from the ABU (the Dutch association of temporary work agencies) said the Dutch staffing market is increasing faster than anticipated.
   
Ordina rose 3.73 pct to 17.22 after Rabo Securities upgraded the issue to 'buy' from 'hold' and raised the price target to 20.0 eur from 17.5 on the strong ICT services market.
   
ABN Amro was 1.0 pct higher at 21.17 after ING increased its recommendation to 'buy' from 'hold' on upside potential.
   
Buhrmann gained 2.03 pct to 10.05 eur, and ASML Holding put on 1.13 pct to 16.07 eur.
   
SBM Offshore led decliners, down 0.94 pct to 20.99 while Shell lost 0.65 pct to 27.48 as OPEC lowered its estimate for world oil demand in 2006 by 80,000 barrels a day.

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Asian shares close higher on Wall St rise, US PPI data

HONG KONG - Shares across the Asia-Pacific region closed higher, buoyed by solid gains on Wall Street overnight as soft US producer price index (PPI) data for July eased concerns about a possible further Federal Reserve rate hike.
   
Benefiting from the bounce on Wall Street, Tokyo shares rose strongly with the Nikkei 225 Stock Average closing up 255.17 points or 1.6 pct higher at 16,071.36, after touching a high of 16,085.07. This was its highest closing level since May 19, when it ended at 16,155.45.
   
The broader TOPIX index of all first-section issues gained 24.61 points or 1.5 pct at 1,629.73, just off an intra-day peak of 1,629.84.
   
"Stock prices rose in tandem with sharp gains on Wall Street overnight as investors welcomed softer-than-expected US wholesale inflation figures, which eased concerns that the Fed will resume raising its key rates again soon," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
   
But some caution over the upcoming US CPI data helped limit the upside, they said. "If the CPI figures turn out to be higher than expectations, this would be a shock to the market," said Hideo Mizutani, chief strategist at Sieg Securities.
   
Australian shares ended higher with investor sentiment buoyed by Wall Street and local economic data, dealers said.
   
They said strong local profit reports elevated buying momentum and investor sentiment was aided by data showing Australian wages remained under control over the June quarter. This, together with falling consumer sentiment, has helped
ease investor fears that the Reserve Bank of Australia will raise its interest rates shortly.
   
The S&P/ASX 200 advanced 25.9 points or 0.52 pct to close at 4,961.9. The benchmark indicator closed off the day's high of 4,994.7 and above a low of 4,950.3.
   
Hong Kong shares were stronger in afternoon trade, led higher by property stocks after the US PPI data fuelled hopes that the Federal Reserve's pause in interest rate increases will continue, dealers said.
   
At 3.27 pm the Hang Seng Index was up 179.22 points or 1.04 pct at 17,453.20.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on a rebound by the Bank of China (SHA 601988, HK3988), the stock with the largest capitalization on the Shanghai exchange, dealers said.
   
The Shanghai A-share Index rose 21.92 points, or 1.31 pct, to 1,699.33 and the Shenzhen A-share Index was up 6.47 points at 417.23.
   
Seoul share prices closed sharply higher with sentiment boosted by Wall Street and lower oil prices, dealers said.
   
The main index ended near its high for the day as program buying picked up in late trade due to foreign investor activity in futures, they said.
   
The KOSPI index closed up 20.50 points or 1.58 pct at 1,315.61, its highest level since May 30, after moving between 1,319.48 and 1,306.45.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Oil prices fall for third day in a row

LONDON - Crude prices dipped as a fragile Middle East ceasefire entered its third day, and ahead of the latest market update on energy stockpiles in the US, dealers said.
  
In London, Brent North Sea crude for September delivery fell 34 cents to 73.46 usd per barrel in electronic trading. The contract expires at the close.
   
Crude-oil futures edged 15 cents lower to $72.90 a barrel ahead of weekly inventory statistics and as OPEC cut its oil demand forecast.
   
Crude futures have now lost approximately two dollars since the start of the week, and have shed more than five dollars since August 7, when London Brent struck a historical record of 78.64 usd.
   
Traders said that the key factor this week was the ceasefire deal between Israel and Hezbollah, which began on Monday after one month of conflict.
   
"Many traders had been concerned that fighting in the region could spread to other countries in the region, such as Iran, that produce a large proportion of the world's oil," said Sucden analyst Michael Sucden.
   
"However, despite the recent slide, the market is not expected to fall too far as a result of supply problems in Nigeria ... and Alaska."
   
British energy giant BP's announcement Friday that it would keep pumping oil from its Prudhoe Bay field in Alaska was also a relief for the market after the sharp run-up in prices in recent weeks, dealers said.
   
BP will maintain about half the output at Prudhoe Bay, the largest oil field in the US. The field normally produces 400,000 barrels per day of crude -- or about 8.0 pct of total US output.
   
Many oil market analysts do not envisage a return to full production before next year.
   
Traders are also on edge about the ongoing nuclear energy crisis with key crude oil producer Iran.
   
Dealers said further price falls could be limited by concerns over Iran, where the Islamic republic has until August 31 to halt its uranium enrichment and reprocessing activities or face sanctions.
   
Later today, traders will zero in on the latest weekly snapshot of crude inventories from the US Department of Energy.
   
Market expectations are for gasoline or petrol reserves to drop by 1.8 mln barrels. Crude stocks are expected to fall by 1.3 mln barrels.
   
Gold futures tacked on $5.40 to $638.40 an ounce.

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