US & World Daily Markets Financial Briefing 17-07-2006

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Stocks edge higher on strong economic data

NEW YORK - Investors pushed stocks modestly higher in early trading Monday as strong manufacturing data helped offset Wall Street's jitters about the situation in the Middle East and a continuing run of uninspiring earnings reports, the latest from Citigroup.
   
With violence in Israel and Lebanon continuing into a sixth day, oil prices nonetheless edged lower as world leaders weighed their options, including a possible United Nations peacekeeping force. A barrel of light crude was quoted at $76.25, down 78 cents, on the New York Mercantile Exchange
   
The U.S. economy continued to show strength, with industrial production rising 0.8 percent in June, according to the Federal Reserve, far better than the 0.4 percent growth economists expected.
   
In the first hour of trading, the Dow Jones industrial average rose 28.34, or 0.26 percent, to 10,767.69.
   
Broader stock indicators also made gains. The Standard & Poor's 500 index added 0.81, or 0.07 percent, to 1,237.01, and the Nasdaq composite index climbed 6.88, or 0.34 percent, to 2,044.23.

Stocks in focus
   
On the earnings front Citigroup, the world's largest bank, said earnings rose 4 percent to $5.27 billion on corporate and investment banking growth. Its profit of $1.05 a share missed consensus earnings forecasts by a penny, and revenue also was shy of analyst estimates.
   
Mattel returned to profitability in the second quarter, helped by sales of toys based around the movies "Cars" and "Superman Returns."
   
Overseas, Philips Electronics unveiled a 69 percent profit decline, but also started a $1.9 billion share buyback program.
   
Novartis reported a weaker-than-forecast 4 percent profit improvement on charges related to the acquisition of most of Chiron's shares.
   
On the M&A front, Phelps Dodge and Inco raised the cash portion of their Falconbridge offer, in response to an upped bid from Xstrata. The total Phelps Dodge bid for Inco and Falconbridge is worth $41 billion.

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Dollar edges higher as hostilities rage on in Middle-east

LONDON - The dollar continued to edge higher, benefiting from fresh flows as middle-east hostilities raged on and oil prices stayed near record highs.
   
"Markets remain focused on developments in the Middle East amid weekend reports of escalating military activity in Israel and Lebanon and a lack of specific guidance from the G8 leaders meeting in St Petersburg," Daniel Katzive at UBS said.
   
The dollar reached nearly 3-month highs against the yen while the euro fell below the key 1.26 usd level.
   
Analysts said the dollar is being viewed as a safe haven currency especially at a time when share prices are also weak. The trend is expected to continue as tensions in the Middle-east dominate headlines.
   
There was a small respite when reports quoted a senior Israeli military official as saying that Israel's offensive could be over within days, assuming the country achieves its objectives. Oil prices eased slightly after the news.
   
"But markets are likely to be cautious about predicting a quick resolution," said Katzive.
   
Over in Europe, the latest euro zone inflation and industrial output figures failed to bring the euro much cheer despite strengthening the case for higher interest rates in the 12 nation area.
   
The euro zone's harmonised index of consumer prices rose a final 2.5 pct year-on-year in June, unchanged from a provisional estimate and from the annual rate in May. Industrial output outpaced expectations, rising 1.6 pct in May from April and up 4.9 pct year-on-year.
   
Elsewhere, public holidays in Japan and South Korea weighed on activity levels.
   
Later today, US industrial production figures will be the focus of some attention, although the event of the week comes Wednesday when US Federal Reserve chairman Ben Bernanke testifies before the Senate banking committee. US inflation data is also due the same day.

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The European Markets 12.00 BST

London - UK blue chips fell further midmorning as the escalating conflict in Lebanon weighed on sentiment, overshadowing a flurry of M&A speculation in the weekend press, and with mining stocks featuring heavily on the downside, dealers said.
   
At 9.55 am, the FTSE 100 was 45.3 points lower at 5,662.3, off initial highs of 5,719.9, while the broader indices were also in decline.
   
Volume was low, with only 367.4 mln shares trading in 63,180 deals.

Frankfurt - Shares were lower in midday trade, giving up bargain-hunting related gains at the opening, as declines on Wall Street on Friday, losses across Asia this morning, sky-high oil prices and expectations of further US losses this afternoon took their toll on sentiment, dealers said.
   
At 11.44 am, the DAX 30 index was 34.18 points or 0.63 pct lower at 5,388.04, having moved between 5,365.06 and 5,451.25 so far this session. The MDAX was at 7,398.82, down 98.07 points or 1.31 pct, while the TecDAX was at 586.28, down 15.37 points or 2.55 pct.

Paris - Shares were lower in midday trade, but off midmorning lows, as market sentiment remained highly nervous over the escalation of the crisis between Israel and Lebanon and soaring oil prices, while technology stocks continued to slide, dealers said.
   
At 12.42 pm, the main CAC 40 index was trading 39.10 points or 0.82 pct lower at 4,742.35, off a low of 4,710.61, on volume of 1.70 bln eur.

Amsterdam - Shares were broadly lower in Amsterdam amid continued tension in the Middle East, resulting in high oil prices, while Philips gained after reporting strong second quarter earnings, dealers said.
   
At 11.51 am, the AEX was down 3.26 points or 0.76 pct to 425.07, after initially opening higher at 429.30.

Milan - Milan shares were lower at midday, affected by mounting violence in the Middle East, dealers said.
   
At 11.53 am, the Mibtel was down 0.83 pct at 26,999 points and the S&P/Mib fell 0.67 pct to 35,207.
   
Madrid - Share prices were down midday, in line with other European markets and US futures, with blue chips lower across the board while Union Fenosa outperformed, dealers said.
   
At 12.05 pm, the IBEX-35 index was down 85.5 points at 11,154.7, after trading in a range of 11,120-11,264, on turnover of 2.12 bln eur.

Brussels - Shares were lower in midday trade, in line with other European markets, as fears about the Middle East and rising oil prices made investors nervous, traders said.
   
At 12.37 pm, the Bel 20 was 19.61 points or 0.55 pct lower at 3,577.45.

Zurich - Share prices were lower in morning trade, in line with markets across Europe, with trading overshadowed by conflict in the Middle East and concern about rising oil prices, traders said.
   
Novartis was down slightly as the pharma group's second quarter earnings failed to meet the consensus, even though a bullish outlook and strength at its core pharma business somewhat reassured investors, they said.
   
At 11.30 am, the Swiss Market Index was 49.21 points lower at 7,457.57, and the Swiss Performance Index down 40.80 points at 5,812.44.

Stockholm - Shares were firmly lower in early afternoon trade, hit by weak US futures, and soaring oil prices amid the deepening crisis in the Middle East, brokers said.
   
At 12.05 pm, the OMX Stockholm index was down 1.13 pct at 291.00, while the OMX Stockholm 30 index was down 0.88 pct to 898.10. Turnover was 6.012 bln skr.

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Asian shares close lower on higher oil prices, Middle East conflict

HONG KONG - Share prices across the Asia-Pacific region closed lower on nervousness about the conflict in the Middle East and higher oil prices, dealers said.
   
Markets in Tokyo and Seoul were closed for holidays.
   
Australian shares ended lower following Wall Street's fall on Friday and continued uncertainty over the situation in Israel and Lebanon, dealers said.
   
The S&P/ASX 200 fell 9.9 points or 0.2 pct to close at 4,956.2. The benchmark indicator closed off the day's low of 4,905.7 and below a high of 4,961.7.
   
Reynolds & Co private client advisor Stuart Smith said the market clawed back losses earlier in the session as investors bought defensive stocks.
   
He said investors were encouraged late in the session by the Dow Jones futures in the US moving into positive territory, indicating that Wall Street will recover after a string of losses last week when  violence in the Middle East combined with record oil prices and concerns over second quarter earnings reports to sour sentiment.
   
Hong Kong shares were lower in afternoon trade, with the key index dropping below 16,000 points early on, following Wall Street's fall on Friday, oil prices and some weak economic data, dealers said.
   
They said escalating conflict in the Middle East, which raises concerns about potential disruptions to the supply of crude oil, and worries of a possible global economic slowdown kept  investors on the sidelines.
   
At 3:29 pm the Hang Seng Index was down 52.65 points or 0.33 pct at16,083.06.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on sustained bargain-hunting, with energy stocks and real estate developers stronger, dealers said.
   
The Shanghai A-share Index jumped 18.67 points or 1.07 pct to 1,769.52 and the Shenzhen A-share Index was up 6.21 points or 1.40 pct at 449.06 on turnover of 12.78 bln yuan.
   
Taiwan share prices ended sharply lower in reduced trade following Wall Street's falls on Friday,  high oil prices and events in the Middle East, dealers said.
   
Investors were also concerned that President Chen Shui-bian might be once again moving towards a tightening of the island's China policy to consolidate his own power base, while some of his former supporters are calling for him to step down to take the blame for alleged corruption scandals implicating his family and top aides.
   
The weighted index closed down 170.23 points or 2.65 pct at 6,257.80, after moving between 6,232.49 and 6,416.41.
   
Singapore shares were sharply lower in afternoon trade on Middle East jitters and oil prices, dealers said.
   
At 3:29 pm the Straits Times Index had fallen 27.89 points or 1.18 pct to 2,335.66.

Asian Bourse Round-Up

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Gold near two month highs on escalating violence in Middle East

LONDON - Gold prices hit their highest levels in almost two months usd on safe-haven buying as violence between Israel and Lebanon continued to raise fears of a wider, regional conflict.
   
At 10.18 am, spot gold, which earlier hit 676.50 usd an ounce, its highest level since mid-May, was quoted at 673.55 usd against 666.60 usd at the time of the COMEX market close in New York Friday.
   
Other precious metals also traded higher. Spot silver was at 11.71 usd against 11.50 usd, platinum was at 1,254.50 usd against 1,252.00 usd while palladium was up at 329.50 usd against 325.50.
   
Gold has been on a strong uptrend ever since Israel launched a military offensive across Lebanon last Wednesday, touched off by attacks on the Jewish state by Hezbollah militants and the abduction of Israeli soldiers.
   
The attacks have taken oil prices to ever higher records - Brent crude hit an all time record high above 78 usd today - while gold, which is seen as a safe haven asset, is nearing the mutli-year highs touched in May.
   
At least 19 people, including Lebanese soldiers, were killed today as Israeli war planes bombed a military base in the northern city of Tripoli, the port of Beirut and Baalbek, a Hezbollah stronghold.
   
The attacks came after a deadly rocket attack by Hezbollah militants on Israel's Mediterranean port of Haifa on Sunday killed eight people and wounded dozens more.
   
"Safe haven buying ... is likely to be an ongoing feature this week with the current conflict between Israel and Lebanon having more than enough potential to draw in other parties and potentially spread across the region," said TheBullionDesk.com analyst James Moore.
   
He said his target for the week is 685 usd for gold, but added that "given
the current conditions (in the Middle East) the metal could potentially test 700 usd".
   
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.

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