US & World Daily Markets Financial Briefing 21-06-2006

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Stock prices climb in early trading

NEW YORK - Stocks rose smartly in early trading Wednesday as stronger-than-expected earnings from FedEx Corp. and Morgan Stanley Inc. put investors' inflation fears on the back burner.
   
Morgan Stanley's second-quarter profit more than doubled from a year earlier and FedEx saw a 27 percent jump in its fiscal fourth-quarter earnings. The results quieted concerns about an economic slowdown, but investors continue to worry about the Federal Reserve's interest rate policy.

In the first hour of trading, the Dow Jones industrial average rose 63.87, or 0.58 percent, to 11,038.71. Broader stock indicators were also higher. The Standard & Poor's 500 index rose 6.12, or 0.49 percent, to 1,246.24, and the Nasdaq composite index rose 13.47, or 0.64 percent, to 2,120.53.
   
Bonds rose, with the yield on the 10-year Treasury note falling to 5.14 percent from 5.15 percent late Tuesday. The U.S. dollar was lower against other major currencies in European trading.
 
In the banking sector, Prudential Equity Group cut J.P. Morgan Chase & Co. to neutral weight from overweight and lowered its price target to $45 from $51, citing recent capital market weakness combined with innate volatility caused by the firm's efforts to build out commodities, mortgages and other capital market areas.
   
Bidders for Univision, the Spanish-language television broadcaster, were preparing offers near the current stock price, valuing it around $11 bn, according to a report in The Wall Street Journal. Investors led by Televisa missed a deadline to submit a bid, but Univision is expected to accept a delayed offer, The New York Times added.
   
The Mittal Steel-Arcelor bid battle took another twist with Alexei Mordashov agreeing to take fewer Arcelor shares in return for his holding in Severstal, the Russian steelmaker.
   
Dutch telecom KPN will pay $55 million in cash in return for sending its global carrier services division to IBasis, as well as 40 million shares of the Burlington, Mass.-based firm. The combined firm had 2005 revenue of $1.1 bn and will become a top five wholesale voice carrier.
   
Merrill Lynch upgraded mobile-phone and networks maker Motorola Inc to buy from neutral, citing attractive valuation, a strong handset portfolio and expectations for margin recovery in the second quarter. In addition, the broker said it believes Motorola is looking to acquire a wireline vendor and that the profile highlighted by management seems to fit Tellabs Inc. the most.

Stocks in focus

Morgan Stanley, the nation's second largest securities firm, rose $2.28, or 4 percent, to $59.30 after its second-quarter profits jumped. The company reported record revenue driven by stronger underwriting, merger and acquisition, and trading results. The results far exceeded analysts expectations.
   
FedEx Corp. rose $3.13, or 2.9 percent, to $111.45, after it reported a 27 percent jump in fourth-quarter earnings, citing solid economic growth in U.S. and international markets. FedEx is the world's largest express transportation company and its results beat Wall Street expectations by a wide margin.
   
Business software maker Oracle Corp. said Portal Software stockholders have tendered 32 million shares, or 74 percent, of the media-focused software company's outstanding stock following Oracle's May tender offer of $4.90 per share. Oracle rose 16 cents to $14.41.
   
The Russell 2000 index of smaller companies rose 3.85, or 0.57 percent, to 681.35.

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Pound on backfoot as Aug rate hike forecasts diminish after MPC minutes

London - The pound drifted lower after the minutes to the last rate-setting meeting at the Bank of England proved to be slightly less hawkish than some in the market had been anticipating.
   
The minutes to the June 8 meeting of the Monetary Policy Committee showed that seven members voted for an unchanged base rate of 4.50 pct, with David Walton once again the only dissenting voice voting for a quarter-point hike.
   
A number of Bank watchers had been expecting a 6-2 vote in favour of unchanged rates, with the MPC gearing itself up for an August rate hike.
   
They also noted that the minutes stressed the lack of second-round wage effects from sky-high energy costs and a prolonged discussion about the downside, as well as the upside, risks to inflation.
   
In addition, the MPC appeared to have been comforted by the recent decline in inflation expectations, as evidenced in the BoE's survey earlier this week.   
   
Elsewhere, the dollar steadied near week lows against lower yielding currencies. Earlier, the euro struck a high of 1.2642 usd, while the dollar  fell down to a low of 114.38 yen.
   
Today's slippage has come despite a further upward adjustment in US rate expectations following yesterday's solid US housing starts data.
   
Daniel Katzive, a currency strategist at UBS, noted that the dollar's failure to benefit from what has been a fairly notable upside adjustment in rates expectations is in contrast to typical price action last year.
   
"The dollar's failure to thrive likely reflects a less favourable atmosphere for carry trades generally, in marked contrast to last year, and elevated concerns about rate hikes in the immediate future choking off growth later this year and into 2007, also in contrast to 2005." he said.
   
However, analysts doubt there will be too much dollar selling ahead of next week's rate-setting meeting of the US Federal Reserve.
   
Though another rate hike from the Fed has been factored in, there is still some uncertainty about whether another one will be in the offing in August.
   
Earlier today, the ECB's president Jean-Claude Trichet paved the way for another hike in the refi rate to 3.00 pct in the next couple of months, when he told the European Parliament that economic growth in the euro zone was solid and inflation remained high.
   
Trichet said the ECB's "timely" increases in interest rates would help contain inflation expectations and added that "monetary policy in the euro area remains accommodative".
   
And yesterday, the Bank of Japan's governor Toshihiko Fukui indicated that the central bank is poised to end its near zero interest rate policy, possibly as soon as next month.
   
Though Fukui said any tightening will be done in small increments and rate-setters should be alert to equity market movements, the markets interpreted his comments as paving the way for a possible rate increase at the July 13 meeting of the BoJ, provided the Tankan business survey at the beginning of July is strong.

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The European Markets at 12.00 BST

London - Leading shares edged lower at midday, with uninspiring updates from DSG International and Sainsbury offsetting expectations the Bank of England will keep rates on hold for the time being and with Wall Street seen opening modestly higher, dealers said.
   
By 11.59 am, the FTSE 100 index ran down 40.4 points at 5,617.8, off an earlier low of 5,613.8, mirroring the weak wider market sentiment.

Frankfurt - Shares were lower in midday trade following a late pull-back on Wall Street overnight, as markets closed down in Asia this morning, and amid a strong euro, with auto stocks in the vanguard of falling large-caps, dealers said.
   
At 12.01 pm, the DAX 30 index was 44.89 points or 0.82 pct lower at 5,448.72, having moved between 5,435.37 and 5,510.15 so far this session.

Paris - Shares were lower in midday trade as overnight downturns on Wall Street and Asian indices weighed on uncertain market sentiment, dealers said.
   
At 12.35 pm, the main CAC-40 index was 48.81 points or 1.02 pct lower at 4,724.00, on trading volume of 1.55 bln eur.

Amsterdam - Shares were broadly lower at midday as heavyweight stocks depressed the index, while second-liner Ordina surged on the back of an upgrade by a brokerage, dealers said.
   
At 12.54 pm, the AEX was down 4.29 points or 1.01 pct to 420.89 after opening at 426.98 and touching an earlier high of 427.31.
  
Government bonds traded broadly lower while the euro traded at 1.2621 usd versus 1.2578 usd late yesterday.

Milan - Share prices were slightly lower at midday led down by oil sector shares, while BMPS was boosted by speculation it could be involved in a merger, dealers said, adding that investors were also focusing on news of IPO cancellations.
   
At 12.49 pm, the Mibtel index was down 0.44 pct to 26,829 points and the S&P/Mib was down 0.46 pct to 35,194, while volumes were 2.26 bln eur.

Madrid - Share prices were slightly lower in quiet midsession trade, in line with mixed international markets and weighed down by late overnight losses on Wall Street, dealers said.
   
At 12.40 pm, the IBEX-35 index was down 0.16 points at 11,086.2, after trading in a range of 11,069-11,135, on turnover of 2.048 bln eur.

Stockholm - Shares were marginally higher in midday trade underpinned by strong gains for fashion retailer Hennes & Mauritz following its better-than-expected Q2 results, but pressured by Ericsson and banking stocks, brokers said.
   
At 12.20 pm the OMX Stockholm index was up 0.18 pct at 297.83 and the OMX Stockholm 30 up 0.35 pct at 922.37.

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Asian shares close mixed, Tokyo down on interest rate fears

HONG KONG - Shares across the Asia-Pacific region closed mixed, with Tokyo falling on fears that Japanese interest rates will rise sooner than expected, dealers said.
   
They said concern was raised after remarks yesterday by Bank of Japan (BoJ) governor Toshihiko Fukui, which the market interpreted as a sign that the central bank would end its zero-interest policy earlier than thought.
   
Fukui said the BoJ will take "proactive" monetary policy actions to reduce the risk of prolonged credit easing, but added that it does not have to raise short-term rates drastically as prices are expected to post gradual gains. 
   
The BoJ govermor also said he had "no presumptions about the content and timing" of the central bank's first rate hike in six years.
   
The market was also depressed by the results of the government's April-June survey of business sentiment, which showed the diffusion index for leading companies fell for the second straight quarter. The index for large companies dropped to 1.8 from 6.1 in the preceding three months.
  
The blue-chip Nikkei 225 Stock Average closed down 4.15 points or 0.03 pct at 14,644.26, off a low of 14,482.96.
   
The broader TOPIX index of all first-section issues closed down 4.81 points or 0.32 pct at 1,505.51, off a low of 1,492.01.
   
"Fukui's remarks shocked the market as participants had begun to consider that an end to the zero-interest policy might be delayed because of turbulence in the world's financial markets," said SBI Securities strategist Hideyuki Suzuki.
  
Ryuta Otsuka, a strategist at Toyo Securities, said the lacklustre outcome of the business sentiment survey also weighed on the market.
   
"Investors were surprised by the negative business sentiment, and the prospects that sentiment will improve in the September quarter do not seem convincing," Otsuka said.
   
Australian shares finished higher as investor sentiment rebounded after global inflation and growth concerns eased, aided by the overnight rise on Wall Street following benign US housing data.
   
Resource stocks jumped after China's steel mills agreed to a 19 pct rise in iron ore prices.
   
The S&P/ASX 200 advanced 57.5 points or 1.18 pct to close at 4,918.9. The benchmark indicator closed off the day's high of 4,924.5 and above the low of 4,877.3.
   
Hong Kong shares were marginally higher in afternoon trade with the market in a cautious mood following Wall Street's mixed performance overnight and ahead of the US Federal Reserve's policy meeting next week.
   
At 3.28 pm the Hang Seng Index was up 47.50 points or 0.30 pct at 15,656.47 points.
   
In mainland China, A-shares in Shanghai and Shenzhen closed mixed, with Shanghai higher on rumors that petrochemical stocks will be privatized while Shenzhen fell on sustained credit-tightening worries.
   
The Shanghai A-share Index added 6.21 points or 0.37 pct to 1,680.31 and the Shenzhen A-share Index was down 1.69 points or 0.39 pct at 429.58.
   
Share prices in Seoul closed little changed following hefty losses over the past two sessions, as retail buying offset continued profit-taking by foreign investors.
   
The KOSPI index closed up 1.36 points or 0.11 pct at 1,227.19, after moving between 1,232.63 and 1,216.10.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold edges lower as economic growth worries overshadow NKorea tensions

LONDON - Gold prices edged lower, giving back some of the late New York gains yesterday, as worries over rising interest rates and slower economic growth overshadowed North Korean threats to test fire a long range ballistic missile.
   
At 12.55 pm, spot gold was quoted at 574.10-574.80 usd an ounce, against 576.75 usd at the time of the COMEX market close yesterday. Other precious metals were trading flat to slightly higher.
   
Spot silver was flat at 10.20-10.30 usd per ounce against 10.31 usd, platinum edged up to 1,171.00-1,176.00 usd from 1,165.00 usd and palladium tipped up to 304.50-309.50 usd per ounce from 298 usd.
   
"There is a bit of a common theme in commodities at the moment in that even when there are bullish developments they are not having the impact that they had six weeks ago," said SG CIB analyst Stephen Briggs.
   
He noted that while news of North Korea's missile launch plans had helped support gold in Asian trade earlier, the metal soon retraced those gains as it resumed its trend away from the May highs.
   
"Sentiment is still quite poor, we've had a 25 pct correction across the board and much more than that for silver and palladium, it's a big move, people can't be as complacent as before about the trend being always up," said Briggs.
   
Geopolitical tensions, high oil prices and uncertain prospects for the US dollar lead gold up to 730 usd in mid-May, a 26-year-high, but a brutal sell-off soon followed as concerns over rising US interest rates took hold.
   
Gold has been pretty range-bound since that sell-off, and many analysts now expect the metal will continue to consolidate ahead of the US Federal Reserve's interest rate decision on June 29.
   
"For now, gold should continue to hold its current range, trading broadly between the 200-day moving average at 550-585 usd as traders await the results of the next FOMC meeting," said TheBullionDesk analyst James Moores.

Crude oil futures were unchanged. A barrel of light crude was quoted at $69.34, in electronic pre-opening trading on the New York Mercantile Exchange.

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