US & World Daily Markets Financial Briefing 28-06-2006

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Stocks rebound in opening trading

NEW YORK  - Stocks rose slightly in early trading Wednesday as they rebounded from Tuesday's selloff, but the gains were muted with little economic or corporate news to fuel the buying.
   
The Dow Jones industrial average lost more than 120 points Tuesday as traders grew increasingly nervous over the Federal Reserve's pending decision on interest rates Thursday. Fed policymakers are expected to announce at least a quarter-point rate hike, which would bring short-term interest rates to 5.25 percent.
  
J. Crew's initial public offering at a higher-than-expected price heartened investors concerned about consumer spending. The preppy retailer's offering was the largest non-restaurant offering in the sector in close to four years.    

In the first hour of trading, the Dow Jones industrial average rose 32.33, or 0.30 percent to 0,957.07. The Dow plunged 120.54 points to 10,924.74 in trading Tuesday.
   
Broader stock indicators were higher. The Standard & Poor's 500 index was up 4.60, or 0.37 percent, to 1,243.80, and the Nasdaq composite index rose 6.10, or 0.29 percent, to 2,106.35.

Merrill Lynch upped oil price forecasts from 2006 to 2008 and upgrading Hess Corp. to buy. "It's apparent that the U.S. consumer is still driving, and the back end of the NYMEX natural gas curve is dropping for natural gas. Combined, 2006 industry operating results could be stronger than we originally anticipated," the analysts said.

Crude-oil futures rose 27 cents to $72.19 a barrel. Weekly inventory data is due later in the session, with traders anxiously awaiting the figures on gasoline in particular.

Stocks in focus

Warner Music turned the tables Wednesday on U.K. music firm EMI Group with a $4.5 billion takeover bid, just after EMI said it boosted its own offer for the Edgar Bronfman-run Warner. EMI said it has improved its initial offer for Warner from $28.50 a share to $31, and the new EMI offer is entirely in cash.
   
United Parcel Services and the U.S. Postal Service reached agreement on a deal that will put mail on planes of the package-delivery company and could improve the post office's reliability, The Wall Street Journal reported Wednesday, citing unnamed people familiar with the matter.

Terms of the arrangement call for UPS to begin flying mail for the Postal Service on Saturday, in what could generate revenue of more than $100 million a year for UPS, the report said.
   
Wendy's said late Tuesday that second-quarter earnings per share will fall due to charges from its early-retirement plan, job cuts and other cost-cutting moves.
   
Nike (NKE) late Tuesday said first-quarter earnings per share will decline on stock-option expenses and increased advertising relating to the World Cup soccer tournament.

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Biomet, which tumbled 6 percent on Tuesday, said fourth-quarter net profit fell 5 percent to $98.5 million, or 40 cents a share, while revenue rose 7 percent to $540 million. Adjusted for compensation to its ex-CEO and other items, it would have earned 46 cents a share, the Warsaw, Ind.-based medical products firm said, meeting Thomson First Call-compiled analyst forecasts.
   
Also due to report results are ConAgra Foods and Arrow International.
   
European stock markets were mixed, with the London FTSE 100 up 0.2 percent while the German DAX 30 dropped 0.3 percent.

Forex

Dollar retains firm tone ahead of crucial Fed rate decision

LONDON - The dollar retained a steady tone ahead of tomorrow night's crucial US interest rate decision.
   
The rate-setting Federal Open Market Committee starts a two-day meeting later today, with a 25 basis point hike in the Fed funds rate to 5.25 pct fully priced in by the market.
   
Attention will therefore focus on the accompanying statement for hints as to whether any further rate rises can be expected, but in the meantime the uncertainty over the US interest rate outlook is causing rangebound trade in the major currencies, analysts said.
   
The dilemma facing Fed rate-setters is that rising inflationary pressures are coinciding with fears of an economic slowdown. Investors have warned of the possibility that the Fed could "overshoot" on rate hikes.
   
Daniel Katzive, currency strategist at UBS, said the dollar could well come under pressure soon and noted that yesterday's testimony from Treasury Secretary designate Henry Paulson was notable in its failure to specifically endorse the so called "strong dollar" policy, in contrast to his two immediate predecessors, both of whom deliberately reiterated the policy in opening remarks at their own confirmation hearings.
   
"Its early days yet of course, but if the opening statement is any gauge, Paulson may be less inclined to reflexively roll out the strong dollar mantra of his predecessors," said Katzive.
   
Meanwhile, solid euro zone economic news, particularly from Germany, and hawkish comments by European Central Bank officials have reinforced expectations that the central bank will itself raise its main cost of borrowing in August by a quarter point to 3.00 pct.

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The spike up in US rate expectations has helped support the dollar in recent weeks because it occurred at a time when short-term yield considerations were moving in favour of the euro and the yen, with both the ECB and the Bank of Japan expected to tighten policy over the coming months.
   
The dollar, as well as bonds, have recently garnered support from the market's reduced appetite for risk in the light of expectations of higher borrowing costs, most evident in the slide in stock markets and commodity prices. Fixed-income issues and the US currency have gained because they are seen as less risky assets than equities and commodities.
   
The yen, meanwhile, remained weak against major currencies amid increasing pressure on the governor of the Japanese central bank, who has been embroiled in controversy over his investment in a scandal-tainted fund.
   
The Japanese currency was weighed down by concerns over a fresh call on BoJ governor Toshihiko Fukui to resign over his investment in the fund of Yoshiaki Murakami, who has been indicted for alleged insider trading.

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Asian shares close lower on Wall St slide, rate fears

HONG KONG - Shares across the Asia-Pacific region closed lower, with sharp falls in some markets in response to the slide on Wall Street overnight and interest rate fears, dealers said.
   
Tokyo share prices finished sharply lower, tracking Wall Street's slump, with investors continuing to fret about the US Federal Reserve's latest policy meeting which begins later today, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed down 285.70 points or 1.9 pct at 14,886.11.
   
The broader-based TOPIX index of all First Section issues fell 21.86 points or 1.4 pct to 1,527.51.
   
The gloom in the market saw some speculators who had bought futures contracts move to unload them, dealers said.
   
"Some market players had taken yesterday's bounce in share prices as a sign that sentiment was turning bullish again but they've now realized the bias remains bearish and they moved to trim their positions," said Kenichi Hirano, a senior strategist at Tachibana Securities.
   
Australian shares also ended sharply lower as investors followed the sell-off on Wall St, dealers said.
   
They said interest rate fears weighed on banking stocks and weaker base and precious metal prices overnight prompted selling in resource stocks.
   
The S&P/ASX 200 plunged 52.4 points or 1.05 pct to close at 4,946.8.
   
Hong Kong shares were lower in afternoon trade, tracking the falls on Wall Street and Tokyo but with buying interest in some China stocks supporting the market, dealers said.
   
At 3:28 pm the Hang Seng Index was down 85.37 points, or 0.54 pct, at 15,687.11.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on profit-taking and renewed fears of further macro-economic controls, with metal listings and automakers under pressure, dealers said.
   
The Shanghai A-share Index slipped 0.23 points or 0.01 pct to 1,723.26 and the Shenzhen A-share Index was down 0.23 points or 0.05 pct at 442.15.
   
Seoul share prices closed lower but got some support in late trade when retail investors moved in to pick up oversold stocks, dealers said.
   
Overall sentiment was undercut by Wall Street's decline, and trading volume was thin.
   
Foreign investors continued to unload shares and their futures activity triggered program selling, adding to the downward pressure, along with falls in the Tokyo market, dealers reported.
   
The KOSPI index closed down 8.83 points or 0.71 pct at 1,238.71, after moving between 1,238.74 and 1,223.11.

Asian Bourse Round-Up

For a full list of closing fugures, click here

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Gold edges higher but remains rangebound ahead of US rate decision

LONDON - Gold prices edged higher but remained rangebound as traders were reluctant to take positions ahead of tomorrow night's US interest rate decision by the US FOMC.
   
At 12.46 pm, spot gold was quoted up at 583.45 usd an ounce against 582.00 usd at the time of the COMEX market close yesterday.
   
Spot silver was up at 10.38 usd against 10.26 usd, platinum was flat at 1,185.00 usd and palladium was up at 309.00 usd against 308.00 usd.
   
Gold hit a high of 591.20 usd yesterday, breaching key technical resistance at 590 usd before fund selling set in, forcing the yellow metal to finish lower despite gains in oil.
   
It has recovered slightly today, but analysts said prices will likely remain rangebound until tomorrow, as traders are reluctant to take positions ahead of the Fed's rate decision.
   
Although a quarter-point rate hike has been widely priced in, there is some speculation about a half-point increase. Also, investors are looking for hints about future rate hikes from the statement accompanying the Fed's rate verdict.
   
"Gold as well as the other metals in the precious complex seem comfortable in their current ranges, with fluctuations in the dollar and energy market providing much of the metal's intraday direction ahead of this week's Fed rate decision and month/quarter/half-year end," said James Moore of TheBullionDesk.
   
A hawkish tone by the Fed could send gold prices lower near term, as interest rate rises support the dollar and make gold less attractive as an alternative investment or hedge against inflation.
   
Longer term, however, Barclays Capital analyst Yingxi Yu said she sees gold prices continuing higher as interest rate rises, while slowing the dollar's decline against the European currencies, will not halt the falls altogether.

Copper rises but nervousness remains ahead of US rate decision

LONDON - Copper prices continued higher, recovering from very sharp falls yesterday, but traders remained cautious ahead of the US Federal Reserve's interest rate decision tomorrow.
   
At 2.27 pm, LME copper for 3-month delivery was up at 6920.00 usd a tonne against its close at 6,740.00 usd yesterday, while aluminium rose to 2,498.00 usd from 2,485.00 usd and zinc increased to 2,995.00 usd against 2,920.00 usd.
   
Yesterday, copper closed lower on data from the International Copper Study Group showing world refined copper production exceeded consumption by 64,000 tonnes in the first quarter of this year.
   
However, analysts said the ICSG under-estimated consumption as it did not take into account changes in China's State Reserve Beuro stocks, which had been drawn down.
   
"Taking these stock changes into account would mean little or no market surplus," said UBS Investment Bank analyst Robin Bhar. He added "supply threats and low stocks mean copper prices are unlikely to fall significantly".
   
The LME reported this morning another 2,000 tonne fall in copper stocks held in its warehouses. Further, the market is still plagued by supply disruptions at copper mines in Mexico and Chile.
   
Man Financial analyst Ed Meir said the Fed's interest rate verdict tomorrow "seems to be the focus for all markets right now, as the central bank attempts to signal ... it is attempting to promote growth without setting off inflation".
   
Although markets have already priced in a quarter-point rate hike, there is speculation about a half-point increase. Also, participants are looking for hints about future rate hikes from the statement accompanying the Fed's verdict.

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