US & World Daily Markets Financial Briefing 23-02-2006

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U.S. Stocks at a Glance

U.S. stocks fall in early trading; Fannie Mae in focus

NEW YORK - U.S. stocks fell in early trading Thursday as investors digested prior-session gains, but shares of Fannie Mae rose after the mortgage lender's current management was cleared of any wrongdoing in the reporting of its earnings.

The Dow Jones Industrial Average fell 44 points to 11,092 after ending Wednesday's session at a more than 4 1/2 year high. The Nasdaq Composite Index  was down 8 points at 2,275 while the S&P 500 Index dropped 5 points to 1,288.

On the broader market for equities, decliners outpaced advancers by more than 2 to 1 on the New York Stock Exchange, and led by 7 to 4 on the Nasdaq. The latest weekly jobless claims underlined the current strength of the U.S. economy.

Stocks in focus

Luxury homebuilder Toll Brothers Inc posted forecast-beating quarterly earnings, but also appeared to hint that a slowdown in the housing market was in the offing in certain parts of the country.

"Speculative demand has ceased and speculators are now putting their homes back on the market ... Markets such as metro Washington, D.C., which are sound economically and showing healthy job growth, will need to work through their excess supply before the imbalance once again tips in our favor," said Robert I. Toll, chairman and chief executive.  The stock was up 1.1% at $32.84.

Among other earnings of note, U.S-listed shares in Reuters Group Plc. fell 11.5% to $41.75 after the UK business news and information group offered up a disappointing revenue outlook.

In other news, shares in Fannie Mae climbed 3.8% to $58 after a special commission investigating the mortgage lender put the onus on the former chief financial officer and controller for a misstatement of earnings.

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Forex

Yen surges after BoJ governor signals policy shift

NEW YORK - The yen rose sharply across the board Thursday, striking a one-month high versus the dollar, after Bank of Japan Governor Toshihiko Fukui indicated that the end of quantitative ultra-easing policy is near.
   
Meanwhile, the euro climbed against the dollar after the closely watched Ifo business climate indicator for Germany topped consensus forecasts.
   
The U.S. currency continued lower, drawing little support from the latest weekly jobless claims report, which showed unexpected strength in the labor market.
   
In early trade, the dollar had touched 116.74 yen, the lowest level since January 26. At last check, the dollar was off 1.1% at 117.05 yen while the euro climbed 0.3% to $1.1941.

BoJ signals policy shift
   
The yen rallied overnight after BoJ government Fukui dropped one of his clearest hints that the central bank is approaching the end of its 5-year-old ultra easing monetary policy.
   
Traders bid the yen higher, interpreting Fukui's comments before the government's Committee on Financial Affairs as a signal the central bank may soon tighten monetary conditions and boost interest rates.
   
Fukui reiterated that the central bank will shift policy "promptly" as soon as certain conditions are met. One of these conditions will be a consistent year-on-year positive CPI growth.
   
Fukui said Japanese financial markets have taken into account, to a certain extent, the likely early end to the Bank of Japan's quantitative monetary policy, according to news reports.
   
"The markets are moving in the direction we prefer," Fukui said. "Inflation may cause long-term rates to make unstable movements. We need to guide monetary policy appropriately so that the economy achieves sustainable growth amid stable price movements."
   
Upbeat German Ifo
   
The euro was boosted after the Ifo business climate indicator for Germany rose to 103.3 in February from 101.8 in January, topping consensus forecasts.    

"The IFO survey hit a 14 year high registering a reading of 103.3 and propelling the EUR/USD to the 1.1950 level in early European trade today," said Boris Schlossberg, senior currency analyst at Forex Capital Markets, in a note. "The news also helps to buttress the expected ECB decision to raise rates to 2.5% at the upcoming March 8th meeting."
   
Germany is the largest economy in the euro zone. 
   
Strong U.S. jobless claims data
   
The dollar had a muted reaction to a Labor Department report which showed first-time seasonally adjusted claims for state unemployment benefits dropped by 20,000 to 278,000 last week, reversing the prior week's gains.
   
Economists were expecting new claims to be steady at about 296,000, according to a survey conducted by MarketWatch.
   
The four-week average of new claims - which smoothes out distortions created by one-time events such as weather - fell by 1,500 to 281,750, close to the six-year low of 276,750 seen two weeks ago.
   
The four-week average of continuing claims fell by 19,500 to 2.5 million, the lowest since February 2001, the month before the recession began five years ago.

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Europe at a Glance

Amsterdam

Amsterdam shares slightly lower early afternoon, led by Numico

Share prices were slightly lower in early afternoon trade, led by Numico after a disappointing outlook for 2006, ahead of an expected lower start on Wall Street later, dealers said.
   
At 1.43 pm, the AEX was down 1.15 points or 0.25 pct at 464.87, after opening at 466.29, reaching a high of 467.15 and falling to a low of 463.62.
   
Numico led blue chip decliners, falling 1.56 pct at 37.17, after earlier falling to a low of 36.38, on disappointment at the company's outlook and with in-line fourth-quarter results showing a weak performance by the baby food activities. Kempen downgraded the stock to 'sell' from 'hold'.
   
Unilever gave up 1.01 pct at 58.55 after its CEO told the FT Deutschland he expects further price erosion in Europe, driven by harsh competition.
   
Oil stocks were also firmly in the red ahead of key US oil inventories data, with Royal Dutch Shell easing 0.62 pct at 25.74 and SBM Offshore down 0.72 pct at 83.05.
   
Other fallers included Wolters Kluwer, slipping 1.52 pct at 18.20, and Philips, off 0.93 pct at 27.79.

Frankfurt

German shares lower midafternoon as Wall Street seen down and as RWE slides

At 3.12 pm, the DAX 30 index was 10.43 points or 0.18 pct lower at 5,851.63, having moved between 5,841.05-5,884.22 so far this session. The MDAX was at 8,283.92, down 7.83 points or 0.09 pct, while the TecDAX was at 735.46, down 0.28 points or 0.04 pct. The DAX futures contract was at 5,861.00, down 18.50 points or 0.31 pct, while bund futures were at 120.65, down 0.40 points.

RWE was the worst performer, sliding 2.00 eur or 2.68 pct to 72.64, as a weaker-than-expected full-year 2005 net profit, a cautious 2006 outlook and a below-consensus dividend payment disappointed investors, with a downgrade to 'hold' from 'add' at WestLB further dampening sentiment towards the issue.

Peer E.ON was down 1.15 at 94.95.
   
Schering fell 0.31 to 58.26, as Morgan Stanley downgraded its stance on the stock to 'equal-weight' from 'overweight'.

Auto stocks were all in the red, as the euro strengthened against the dollar, with DaimlerChrysler slipping 0.78 to 46.75, Volkswagen dropping 0.08 to 58.95, and BMW losing 0.17 to 39.43.

At the other end of the market, Metro jumped 1.71 eur or 4.05 pct to 43.91, as the GfK market research institute said its consumer climate index is forecast to rise to 4.8 points in March, up from 4.6 points this month, after consumer sentiment remained buoyant in February ahead of the football World Cup.

Paris

Paris shares flat midafternoon, off morning highs

At 3.30 pm, the CAC-40 index was down 4.56 points or 0.09 pct at 5,037.04. There were 20 decliners and 19 gainers, while Dexia stock was unchanged among the CAC-40 shares. Volume was 3.38 bln eur.
   
On the Matif, March CAC-40 futures were trading down 7.5 points or 0.15 pct at 5,043.5.
   
Thomson continued to lead the gainers, up 0.92 eur or 6.53 pct at 15.00 after saying it is positioned to return to profitability in 2006 after posting a full year net loss that was less than the previous year's loss.
   
Capgemini was up 1.34 eur or 3.36 pct at 41.21, after posting a full year profit, against the loss made in 2004, and gave growth guidance that pleased analysts.
   
Suez extended yesterday's gains, up 0.91 eur or 2.85 pct at 32.80 as speculation continued that Enel SpA may launch a hostile bid for Suez to snare its Electrabel unit.
   
Electricite de France was up 0.90 eur or 2.15 pct at 42.73 after it reported a doubling of its full year net profit, and the CEO declared ambitions to make acquisitions in other European markets.
   
Among the losers, Lafarge dropped 2.35 points or 2.55 pct to 89.85, as analysts were disappointed by new chief Bruno Lafont's restructuring proposals that were more modest than expected. 

London

For a list of the latest FTSE risers and fallers, click here

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Asia at a Glance

Asian shares close higher, Tokyo higher on Wall St rally

HONG KONG - Share prices across the Asia-Pacific region ended higher, with Tokyo sharply up on gains in New York markets overnight, dealers said.
   
They added that sentiment was also buoyed by offshore investors having once again become net buyers last week, leading to the Nikkei rising back above the 16,000 mark.
   
The blue-chip Nikkei 225 Stock Average finished up 314.32 points or 1.99 pct at 16,096.10, its high for the session.
   
The broader TOPIX index of all first-section issues gained 31.01 points or 1.93 pct at 1,640.47, off a high of 1,642.98.
   
Shinko Securities senior strategist Yutaka Miura said share prices gained on the rally on Wall Street overnight.

"This is because US consumer price index data for January, released overnight, eased investor worry about inflation, while a pullback in oil prices also helped investor sentiment."
   
Ichiyoshi Investment Management chief fund manager Mitsushige Akino said the
market here also got a boost from overseas investors, who were net buyers last
week.
   
"Market participants were relieved that there was no speculative selling from offshore players to push the Nikkei below 16,000 points," Akino said. "This prompted some investors to buy back shares."
   
In Australia, share prices finished higher as strong company earnings maintained investor buying enthusiasm, pushing the key market indicators closer to record highs reached on Feb 1, dealers said.
   
They said the banking sector was favored after a surge in private capital expenditure data for the December quarter and forecasts of greater investment intentions ahead.
   
Dealers said index-leading BHP Billiton and Rio Tinto also supported the market higher, reversing some of yesterday's losses.
   
The S&P/ASX 200 rose 26.5 points or 0.54 pct to close at 4,913.2.
   

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Share prices in Hong Kong were trading higher in the afternoon led by the property sector on easing interest rate worries and after the government said it proposes to extend tax relief for mortgage loan repayments, dealers said.
   
At 3:32 pm, the Hang Seng Index was up 137.95 points or 0.88 pct at 15,773.67.
   
In mainland China, A-shares in Shanghai and Shenzhen shrugged off early weakness and closed higher on some bargain-hunting interest with banks and automakers in favor in particular, dealers said.
   
The Shanghai A-share Index rose 4.74 points to 1,351.79 on turnover of 10.51
bln yuan and the Shenzhen A-share Index was up 0.07 point at 324.46 on turnover of 6.75 bln yuan.
   
Share prices in Seoul ended sharply higher on strong institutional investor support, ending a two-day decline, with large-cap IT, banks and auto stocks making solid advances, dealers said.
   
The market remained strong throughout the session, after a firm start triggered by Wall Street's overnight gains and easing oil worries.
   
Massive program buying, amounting to 377.8 bln won, and foreign investor support toward the close led the index to rise far above its long-held resistance level of 1,350 points.
   
The KOSPI index closed up 20.65 points or 1.54 pct at 1,361.23.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Commodities

Gold futures dipped in morning trading. The benchmark April contract was off $1.70 at $554.90 an ounce.

On the bond market, long-term Treasury prices fell, sending yields higher after the latest jobless data did little to dissuade investors that further interest-rate hikes were in the works.

The benchmark 10-year note was down 8/32 at 99 18/32 with its yield at 4.6%.

Crude-oil futures were slightly lower in early trading ahead of weekly inventory data expected to show renewed increases in stockpiles of oil, gasoline and heating oil.

The benchmark April contract was last down 25 cents at $60.76 in electronic trade after sliding nearly 3% in the previous session.

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