US & World Daily Markets Financial Briefing 18-09-2006

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Stocks dip as traders await Fed meeting

NEW YORK  - Wall Street was little changed in early trading Monday as investors made few big moves while they awaited Wednesday's Federal Reserve meeting.
   
The market is nervous about whether the Fed will keep the nation's benchmark interest rate at 5.25 percent as readings of economic growth and inflation remain mixed.
   
For instance, America's deficit in the broadest measure of foreign trade increased in the spring to the second highest level in history, reflecting a big jump in payments for foreign oil. The Commerce Department said Monday the deficit in the current account rose to $218.4 billion in the April-June quarter, an increase of 2.4 percent over the deficit the first three months of the year.
   
The current account is the broadest measure of foreign trade because it covers not only trade in goods and services but also investment flows between countries. The deficit represents the amount the United States must borrow from foreigners to cover the shortfall between exports and imports.
   
In the first hour of trading, the Dow Jones industrial average fell 13.21, or 0.11 percent, to 11,547.56.
   
Broader stock indicators were narrowly mixed. The Standard & Poor's 500 index fell 0.41, or 0.03 percent, to 1,319.46, and the Nasdaq composite index fell 0.72, or 0.03 percent, to 2,234.87.
   
Bonds fell, with the yield on the 10-year Treasury note at 4.81 percent, up from 4.79 percent Friday. The U.S. dollar was mostly higher against other major currencies in European trading. Gold prices rose.
   
Crude oil futures rose. A barrel of light crude was quoted at $63.59, up 26 cents, in electronic pre-opening trading on the New York Mercantile Exchange.
   
The Russell 2000 index of smaller companies was down 2.22, or 0.30 percent, at 727.13.

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Dollar dented by drop in investment flows; yen continues lower

LONDON - The dollar was dealt a blow after news that portfolio flows into the US slowed to levels not seen in over a year.
   
Inflows in July reached only 32.9 bln stg, well down on 75.1 bln stg in June. The latest figure is lowest since May 2005.
   
"The US unit was sold on the back of the headline TIC data. However, it is private inflows that represent the majority of the fall. As a result the numbers are not as dollar negative as the headline implies," said Matthew Foster-Smith at Thomson IFR markets said.
   
Indeed, the dollar fell sharply in knee jerk reaction to the news but soon pared losses. Earlier the dollar ignored a wider US current account gap.
   
The Commerce Department said the US current account deficit widened to 218.4 bln usd in the second quarter to reach 6.6 pct of GDP. The shortfall was wider than expected and the second highest ever. And, to make matters worse, the deficit in the first quarter was revised to 213.2 bln usd from the initial estimate of 208.7 bln usd.
   
"The US current account deficit came in about 4 bln usd wider than expected, but with numbers this large, 4 bln seems like a rounding adjustment. Dealers are mostly sitting back," said Jamie Coleman at Thomson IFR markets.
   
That aside, the dollar got a fleeting boost earlier when US Treasury Secretary Henry Paulson said that the US will not budge from its strong dollar policy. He was speaking after annual talks of the G7 and the IMF.
   
The yen, meanwhile, continued to drift lower after the weekend's G7 meeting failed to make mention of the yen's weakness.
   
The final communique from the G7 meeting called for greater currency market flexibility from emerging economies and especially China. The yen appeared to have escaped notice even though behind-the-scenes wrangling is almost certain to have occurred.
   
There were pointed comments from Japanese Finance Minister Sadakazu Tanigaki and European Central Bank Governor Jean-Claude Trichet. The former said there was no specific discussion on the yen or euro during the meeting.
   
But Trichet hinted that more did go on: "We noted that the exit from the zero interest rate policy (in Japan) and that its recovery is now broadly based -- we agree that the yen will reflect these developments."
   
Elsewhere, the pound stayed little changed after news that a growing majority of Britons are predicting a rate hike over the next 12 months, signifying a rise in inflation expectations.
   
According to the Bank of England's latest quarterly survey of inflation expectations, the proportion of Britons predicting higher interest rates over the next 12 months has hit a 2-year high as inflation expectations stay at elevated levels.

The rouble was trading at 26.81 against the dollar on the interbank exchange in Moscow, against 26.77 on Friday. Against the euro, the Russian currency was at 33.98, from 34.06 on Friday.
   
Volume was 699.9 mln usd compared with 821.3 mln, and 16 mln eur against 23.8 mln.

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The European Markets at 11.30 GMT

London - Leading shares pushed higher at midday, led by a recovering mining sector and a bounce across the oil sector, while indications of another firm opening on Wall Street also helped. By 12.10 pm, the FTSE 100 index was up 33.8 points at 5,910.5, while the broader indices were also higher.
   
Frankfurt - Shares were largely flat in midday trade and as US stock futures pointed to gains on Wall Street and Continental continued gains on a positive rating while MAN fell on speculation it will increase its offer for Swedish competitor Scania. At 12.38 pm, the DAX 30 index was 0.29 points higher at 5,938.16, having moved between 5,920.23 and 5,950.36 so far this session.

Paris - Shares were higher at midday, but most gains were small and trading was light as the market awaited direction from Wall Street. At 11.55 am, the CAC 40 index was up 8.15 points or 0.16 pct at 5,153.03.

Amsterdam - Shares in Amsterdam were gently up in midday trade as US futures pointed to a higher Wall Street open. At 12.45 pm, the AEX was up 0.76 point or 0.16 pct to 475.61, after opening at 475.62 and trading in a range of 474.70-476.36.

Brussels - Shares were higher at midday, boosted by Wall Street gains at the end of last week, with utility Suez leading the blue-chips, traders said. At 12.01 pm, the Bel 20 was up 6.40 points, or 0.16 pct, at 3,991.27.

Milan - Share prices were higher at midday trade, led by gains among heavyweight oils, while Telecom Italia turned higher as investors welcomed the appointment of a new chairman, dealers said.
   
At 12.40 pm, the Mibtel index had gained 0.20 pct to 29,078 points and the S&P/Mib was up 0.24 pct at 37,982, while volumes were 1.93 bln eur.

Madrid - Share prices were higher in quiet midday trade on firm US futures, boding for a positive start on Wall Street, with Repsol YPF boosted by news on its Bolivian operations, while Antena 3 slumped on a downgrade. At 1.04 pm, the IBEX 35 index put on 40.1 points to 12,318.5, after trading in a range of 12,284-12,329, on turnover of 1.17 bln eur.

Stockholm - Shares remained in positive territory in midday trade, little changed from morning levels, with TeliaSonera, Nordea, and SAS continuing to outperform as investors discount a decrease in government ownership in the firms after the centre-right victory in the general election.
   
At 12.20 pm, the OMX Stockholm index was up 0.98 pct at 333.81 points, while the OMX Stockholm 30 index was up 1.00 pct at 1,035.69.

Helsinki - Share prices were slightly higher at midday, with losses in Nokia and Perlos, which were triggered by Perlos's profit warning, and were seen offsetting gains in TeliaSonera and Nordea that were advancing on news of the Swedish centre-right coalition's win in the the legislative election, brokers said.

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Asian shares close higher on Wall St, easing of rate fears

HONG KONG - Shares across the Asia-Pacific region closed higher on gains by Wall Street on Friday and the widespread belief that the US has halted interest rate rises in the near term.
   
The Tokyo market was closed for a national holiday.
   
Australian shares finished higher as investors bought banking stocks on portfolio adjustments, which outweighed losses within the mining sector. Major oil stocks rose on higher oil prices in overnight trading on Friday.
   
The S&P/ASX 200 ended up 36.4 points or 0.72 pct to close at the high of the day of 5,072.8, while the low was 5,023.8.
   
Hong Kong shares were stronger in afternoon trade led by the property sector as benign US inflation data boosted hopes that the US Federal Reserve will keep interest rates unchanged at its meeting this week, dealers said.
   
At 3.25 pm the Hang Seng Index was up 161.55 points or 0.94 pct at 17,399.20.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher on expectations of increasing money inflows, with tourism stocks and steel makers in demand.
   
The Shanghai A-share Index rose 11.08 points or 0.61 pct to 1,821.38 and the Shenzhen A-share Index was up 6.39 points or 1.45 pct at 446.36.
   
Taiwan shares rallied across the board and closed sharply higher as investors took advantage of easing domestic political worries, following relatively peaceful weekend protests against President Chen Shui-bian and an early upswing triggered by Wall Street's Friday gains.
   
The market welcomed the fact that there were no major incidents during the street demonstrations on Friday and Saturday despite a heavy turnout, with some protesters demanding Chen's resignation over corruption allegations while other groups voiced support for him.
   
Expectations of strong industry prospects also convinced investors to chase prices higher, they added.
   
The weighted index finished up 201.39 points or 3.01 pct at 6,882.48, its highest level since 6,959.64 recorded on June 2. The index traded between 6,775.12 and 6,886.30. 

Seoul shares closed higher, extending solid gains for a fourth session, with Samsung Electronics rallying more than 2.0 pct on heavy program buying driven by foreign investors' strong interest in futures.
   
Broad sentiment was supported by hopes that with oil prices easing there will be no more rate hikes in the US for a while, helping the world's largest economy avoid a hard-landing, they added.
   
The KOSPI index closed up 13.20 points or 0.97 pct at 1,374.30, off a high of 1,378.04 and a low of 1,358.57.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold recovers from last week's plunge

LONDON - Gold prices edged higher after steep losses last week helped by demand for the metal in the Far East and an oil price recovery from near 6 month lows.
   
But analysts warned against calling a secular rebound. "The current theme of long liquidation is likely to see gold continue lower and could look to test the 542.50 usd low from June," James Moore of TheBullionDesk.com told AFX News.
   
At 11.38 BST spot gold, which earlier hit a high of 584.05 usd, was quoted at 582.65 usd, up from 577.45 usd at the time of the COMEX market close in New York Friday. Other precious metals were mixed.
   
Spot silver was at 10.97 usd an ounce against 10.76 usd yesterday, platinum was at 1,160.50 usd against 1,155.00 usd, while palladium was at 309.00 usd against 310.00 usd.
   
Gold has lost more than 20 pct of its value since hitting multi-year highs in May. It lost more than 5 pct last week amid continued dollar strength and a sell-off in commodities like oil, which is some 20 pct below its July peaks.
   
While precious metals recovered today as the market consolidates and physical demand in the Far East lends support, Standard Bank warned the outlook for the metal is mixed.
   
The bank said the technical picture appears weak, with gold trading below short and long dated moving averages, while price gains are limited by "technical selling interests hovering below the 600 usd mark".

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