US & World Daily Markets Financial Briefing 22-06-2006

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Stocks dip in early trade as oil rises

NEW YORK - Stocks retreated in early trading Thursday as higher oil prices curbed Wall Street's momentum from a sharp rally in the prior session.
   
A slight rise in weekly unemployment claims drew little reaction from investors, who were also awaiting the latest reading of the Conference Board's index of leading indicators shortly after the open. The index, a composite of previously released reports, is forecast to drop 0.5 percent for May.
   
The market continued its expected pattern of up-and-down trading ahead of the Federal Reserve's policy meeting next week. Although investors are mostly convinced the Fed will hike interest rates again, they have been focused on the central bank's opinion of inflation and the economy's health.
   
In the first hour of trading, the Dow Jones industrial average fell 12.97, or 0.12 percent, to 11,066.49. The Dow gained almost 105 points Wednesday.
   
Broader stock indicators were also lower. The Standard & Poor's 500 index was down 1.85, or 0.15 percent, at 1,250.35, and the Nasdaq composite index lost 1.50, or 0.07 percent, to 2,139.70.
   
Bond yields remained inverted as prices fell. The yield on the 10-year Treasury note edged up to 5.17 percent from 5.16 percent late Wednesday, while the 2-year yield steadied at 5.2 percent.
   
Weekly jobless claims are the highlight of a relatively quiet session for data releases, with the more important durable-goods orders figures due out on Friday. Leading indicators for May are due at 10 a.m. EDT.
   
Stocks in focus

Of companies in focus, Univision could be in for further losses after The New York Times reported the group led by Group Televisa lost U.S. investment firms Blackstone Group and Kohlberg Kravis Roberts in their consortium in a disagreement over the bid price.

Only a group that included a number of investment firms such as Providence Equity Partners and the Texas Pacific Group lodged a bid for Univision, at $35.50 a share, but Univision rejected it, the report said.
   
British Airways tumbled 5 percent in London trade after disclosing the U.K. Office of Fair Trade and the U.S. Department of Justice are probing the airline over ticket prices and fuel surcharges. BA said other airlines are being probed as well. A United Airlines spokesman said the airline also is being probed, while American Airlines said it's been subpoenaed but is not a target.
   
German insurer Allianz said it would cut nearly 7,500 jobs at its insurance and banking operations.
   
Oracle Corp. is due to report earnings after the close of trading.

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Pound slips following Walton death

LONDON - The pound was on the backfoot on the news that David Walton, the only member of the Bank of England's rate-setting body to vote for a rate hike in the last two months, has died.
   
The minutes to the June 8 meeting of the MPC, published yesterday, showed that Walton was once again the only dissenting voice on the eight-member panel voting for a quarter-point hike in the repo rate to 4.75 pct. As a result, news of Walton's death sent UK gilts higher and put the pound on the backfoot.
   
"Walton had been the lone MPC member voting for a hike at the last two meetings, and short sterling implieds have moved lower by about 4 basis points in reaction while the euro moved higher against the pound," said Daniel Katzive, currency strategist at UBS.
   
Walton's death leaves the MPC short of two members as Chancellor of the Exchequer Gordon Brown has yet to appoint a successor to Richard Lambert, who left the MPC earlier this year to become director-general of the Confederation
of British Industry.
   
The MPC's next rate setting vote is on July 6. It will be the first time since a brief period in 1997 when the MPC was first set up, that only the rate-setting committee has been reduced to seven. Under the legislation that set up the MPC, the MPC cannot operate without at least six members.
   
Elsewhere, the dollar garnered support across the board as emerging market currencies and commodities suffered a renewed bout of selling.
   
Ian Stannard, currency strategist at BNP Paribas, said the catalyst to the dollar's move higher was the slide in the New Zealand dollar overnight.
   
That fell sharply on the news that New Zealand annual current account deficit equated to 9.3 pct of the country's GDP, the worst result since 1975.
   
New Zealand's woes sparked a flight out of other emerging market currencies and commodities, helping the US dollar in its capacity as a safe haven.
   
Earlier, the euro had been supported by comments yesterday from the European Central Bank's president, that reinforced expectations of further interest rate hikes to come.
   
Analysts said Jean-Claude Trichet's comments to the European Parliament stoked growing concerns about the emerging inflationary threat in the 12 nation single currency zone. He noted the rise in the HICP inflation measure to 2.5 pct in May and his belief that it will remain elevated over the coming months.

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The European Markets at 12.00 BST

London - London shares climbed higher at midday, with a rally in Unilever shares after its CEO Patrick Cescau suggested the group's growth targets have improved, offsetting a slump in British Airways and with Wall Street expected to open firmer, dealers said.
   
At 11.57 am, the FTSE 100 was 52.9 points higher at 5,717.9, reflecting the positive wider market sentiment.

Frankfurt - Shares were higher in midday trade after gains on Wall Street overnight and in Asia this morning and as broker upgrades boosted selected stocks, dealers said.
   
At 11.51 am, the DAX 30 index was 53.80 points or 0.98 pct higher at 5,557.21, having moved between 5,538.97 and 5,580.82 so far this session.

Paris - Shares were higher in early afternoon trade, as market sentiment was lifted by strong overnight gains on Wall Street and in Asia, dealers said.
   
At 12.27 pm, the CAC-40 index was 47.81 points or 1.00 pct higher at 4,822.54, on trading volume of 1.70 bln eur.

Amsterdam - Share prices were higher in early afternoon trade, led by Unilever, ahead of an expected higher opening on Wall Street, dealers said.
   
At 1.02 pm, the AEX index was up 4.24 points or 0.99 pct at 430.88, after opening at 431.13 and trading in a range of 429.79-432.35.

Milan - Share prices were slightly higher in midday trade, tracking a strong showing overnight on Wall Street, with Seat PG leading the way after a new product presentation, dealers said.
   
At 12.41 pm, the Mibtel index rose 0.52 pct to 27,172 points and the S&P/Mib added 0.41 pct to 35,646, while volumes stood at 2.49 bln eur.    

Madrid - Share prices were higher midsession, as the main blue chips benefited from overnight gains in the US and Asia, with Ferrovial and Cintra in demand on the news of Isolux's bid for Europistas, in which Cintra has 30 pct, dealers said.
   
At 12.40 pm, the IBEX-35 index was up 82.10 points at 11,237.50, after trading in a range of 11,221-11,257, on turnover of 1.669 bln eur.

Stockholm - Shares were sharply higher in early afternoon trade amid indications that Wall Street will resume trading on the upside this afternoon following its strong gains overnight, brokers said.
   
At 1.35 pm, the OMX Stockholm index was up 1.39 pct at 302.77 and the OMX Stockholm 30 was up 1.46 pct at 938.76. Turnover was 7.703 bln skr.

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Asian shares close mostly higher, boosted by Wall St

HONG KONG - Shares across the Asia-Pacific region closed higher, boosted by Wall Street's rise overnight and positive local news.
   
Tokyo share prices ended sharply higher, supported by Wall Street and by Japanese trade data for last month, with the benchmark Nikkei index finishing above the 15,000-point level for the first time in two weeks, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed 491.43 points or 3.36 pct higher at 15,135.69, the first time since June 7 that the index has closed above 15,000 points.
   
The broader TOPIX index of all first-section issues was up 43.61 points or 2.9 pct at 1,549.12.
   
Japan's merchandise trade surplus was 35.2 pct higher last month than a year earlier, rising for the first time in 17 months and at its fastest pace in nearly two years because of brisk exports of automobiles to the US and easing prices of crude oil.
   
Retela Crea Securities strategist Yoku Ihara said: "The trade surplus data confirmed the solid nature of US demand, helping ease fears that the US economy could lose growth momentum because of interest rate hikes.
   
"If the US economy can maintain healthy growth ahead, even if at a more moderate pace, then we do not have to worry too much about the prospects for the US market.
   
"And if so, then neither do we have to fear the resumption of massive capital repatriation by US investors."
   
Australian shares also closed sharply higher as investors swept back into the market, driving the key S&P/ASX 200 index back above 5,000 points, dealers said.
   
They said the overnight jump on Wall Street supported major bank stocks as global inflation and growth concerns temporarily eased, while resource stocks rose on higher metal prices and the decision by Chinese steel makers to accept a 19 pct increase in iron ore contracts.
   
The S&P/ASX 200 jumped 91.9 points or 1.87 pct to close at 5,010.8.
   
Hong Kong shares were higher in afternoon trade following Wall Street's gains and positive US earnings reports, dealers said.
   
Investors were also encouraged by heavy gains on the Japanese market, they said, adding that the market has already factored in a hike in US interest rates next week.
   
At 3.30 pm the Hang Seng Index was trading up 169.82 points or 1.08 pct at 15,928.18.
   
In mainland China, shares defied the bullish trend with A-shares in Shanghai and Shenzhen ending lower on cautious trading ahead of the Bank of China's A-share IPO and petrochemical and auto stocks under pressure, dealers said.
   
The Shanghai A-share Index lost 2.27 points or 0.14 pct to 1,678.04 and the Shenzhen A-share Index was down 1.10 points or 0.26 pct at 428.49.
   
Seoul shares closed higher with broad sentiment boosted by solid gains on Wall Street, dealers said.
   
Foreign investor activity in futures triggered massive program buying, with sharp gains in major Asian markets also helping sentiment.
   
The KOSPI index closed up 11.64 points, or 0.95 pct, at 1,238.83, after moving between 1,248.28 and 1,236.15.

Asian Bourse Round-Up

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Gold holds on to 1-week highs as Europe takes lead from Asian buyers

LONDON - Gold prices held above 590 usd, their highest level in a week, as European traders took their lead from Asia, where firm buying from Japanese retail investors pushed the precious metal to trade limit up on TOCOM.
   
At 11.54 am, spot gold was quoted at 591.35-592.35 usd an ounce, against 588 usd at the time of the COMEX market close yesterday. Other precious metals were trading mixed.
   
Spot silver was flat at 10.53-10.63 usd per ounce against 10.51 usd, platinum edged up to 1,193.00-1,198.00 usd from 1,192.00 usd and palladium was up to 313.50-318.50 usd from 310.00 usd.
   
Gold rallied in New York trade yesterday, helped by a slightly weaker US dollar, gains in oil, light speculative buying and reports of modest but improved physical demand.
   
It extended those gains today, but analysts warned prices will remain volatile until end-June, when it is hoped the Federal Reserve will accompany an expected quarter-point hike in US interest rates with hints as to the chances of further increases in August.
   
"The recent performance of gold has exceeded our short-term forecasts although we consider the metal still vulnerable to renewed worries about inflation and growth," said UBS Investment Bank analyst John Reade.
   
He added that he remains concerned that "scaled-up selling from standard longs (buyers) may cap any move higher", but pointed out that "a weekly close above 600 usd will turn sentiment bullish again".

Copper continues higher as inventories fall

LONDON - Copper prices continued higher for a second day on concerns about falling inventory levels and in line with gains in gold and oil, but buying was capped by worries over inflation and slowing economic growth.
   
At 3.09 pm BST, LME copper for 3-month delivery was up at 6,805.00 usd a tonne against its close at 6,800.00 usd yesterday, while aluminium was up at 2,510.00 usd against 2,500.00 usd and zinc was up at 2,985.00 usd from 2,929 usd.
   
"Both copper and nickel are building on yesterday's bullish closes, reinforced by this morning's fall in LME stocks," said UBS Investment Bank analyst Robin Bhar.
   
The LME reported this morning copper stocks held in its warehouses fell below the 100,000 tonne level and that the combined stocks of the LME, COMEX and Shanghai currently total 168,000 tonnes against 800,000 tonnes at end-2003.
   
Copper prices have gained 60 pct since the end of last year, but they have fallen sharply from their May 11 peak of 8,800 usd, as the market becomes increasingly concerned about inflation and slowing economic growth.
   
Analysts say volatile, thin and illiquid trade will likely be a feature of all commodity complexes until end-June, when the second quarter comes to an end and when the US Federal Reserve holds its rate-setting meeting.

Crude futures ticked higher after the government reported a smaller-than-expected rise in gasoline stocks as the peak summer driving season gets underway. A barrel of light crude gained 52 cents to $70.85 on the New York Mercantile Exchange.

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