US & World Daily Markets Financial Briefing 28-07-2006

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Stocks climb on slowdown in 2Q GDP

NEW YORK - Stocks rallied in early trading Friday after a sharp slowdown in second-quarter gross domestic product growth fed hopes for an end to rising interest rates.
   
Investors cheered after the Commerce Department said GDP growth slowed to a 2.5 percent annual rate from 5.6 percent in the first quarter. Although the reading drove concerns that the economy could be headed for a downturn -- economists were predicting a 3 percent rate -- it reinforced beliefs that the Federal Reserve may not need to hike interest rates further.
   
Wall Street's optimism overshadowed data showing rising inflation. The GDP report said core consumer prices -- excluding energy and food -- surged 2.9 percent last quarter, while the department's employment cost index rose a stronger-than-forecast 0.9 percent.
   
In the first hour of trading, the Dow Jones industrial average gained 76.68, or 0.69 percent, to 11,177.11.
   
Broader stock indicators also advanced. The Standard & Poor's 500 index was up 7.37, or 0.58 percent, at 1,270.57, and the Nasdaq composite index climbed 15.18, or 0.74 percent, to 2,069.65.
   
The economic data lifted bonds, with the yield on the 10-year Treasury note sliding to 5.01 percent from 5.04 percent late Thursday.
   
Stocks in focus
   
Wal-Mart Stores on Friday said it didn't want to wait for Germany's economy to recover, agreeing to sell all 85 of its hypermarkets in the country to Metro AG. Wal-Mart said it will record a $1 billion charge before tax during the second quarter on the deal.
   
Chevron is the last of the oil giants to report quarterly results, following figures from Exxon, Shell and BP earlier this week.
   
Baker Hughes said second-quarter net income soared to $1.4 billion, or $4.14 a share, on a $1 billion gain from the sale of its 30 percent interest in WesternGeco. Excluding that and other items, it would have earned $1.07 a share against 64 cents a share last year.

Revenue at the Houston drilling services firm rose 25 percent to $2.2 billion, helped by higher prices. Analysts polled by Thomson First Call had expected earnings of 98 cents a share on revenue of $2.19 billion.
   
McAfee is expected to tumble after it said late Thursday that an ongoing review of its stock-option practices will force it to restate past results.
   
Server provider Rackable Systems also is expected to fall after its third-quarter earnings and forecasts only met Street forecasts at the top end.

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Dollar suffers renewed weakness following soft US Q2 GDP

LONDON - The dollar suffered a renewed bout of selling as it emerged that the US economy grew by much less than anticipated in the second quarter, further diminishing expectations of another interest rate hike from the US Federal Reserve.
   
The Commerce Department reported that GDP expanded by an annual 2.5 pct in the three months to June, a marked slowdown from the first quarter's 5.6 pct.
   
Though the figure is likely to be revised as more information becomes available, the quarterly rise is much lower than the 3.2 pct predicted by economists. The department said the slowdown largely reflected downturns in consumer spending on durable goods, equipment and software.
   
Analysts said today's news has more or less ended any talk that the Fed will raise the cost of borrowing again at its meeting on August 8, though there will be some interest in the upcoming July jobs report and inflation data. The Fed has raised its key Fed funds rate a quarter point on 17 consecutive occasions to 5.25 pct.
   
Elsewhere, the yen remained steady following its overnight rally on speculation China will soon announce another revaluation of its currency.
   
The Japanese currency has garnered some support over the last day or two, despite some weak economic data, as the pressure on China to revalue the yuan, particularly from US lawmakers, has intensified.
   
US Senators Charles Schumer and Lindsey Graham have told the new US Treasury Secretary Henry Paulson that they would demand a vote on legislation for steep US tariffs on Chinese goods by Sept 30 if the Chinese yuan has not moved significantly.
   
In addition, the monetary authorities in Beijing appear to be growing concerned about the level of economic growth in China. A government think-tank predicted third quarter annualised growth of 11 pct.
   
If China does revalue, most currency watchers expect the same sort of reaction as occurred last July when China abandoned the yuan's peg with the dollar, and linked the currency to a basket of currencies.
   

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FTSE 100 risers

Xstrata 2,260 up 119, Inco Ltd pulls out of Falconbridge bidding war

Northern Rock 1,146-1/2 up 40, recovers after yesterday's fall; DK ups target to 1,225 pence from 1,150

BSkyB 561 up 11, FY results above estimates; Merrill Lynch reiterates 'buy'

Smiths Group 908-1/2 up 12-1/2, bullish broker comment ahead of trading statement

Anglo American 2,253 up 32, De Beers (45 pct owned by co) sees diamond market improving; with Xstrata

Boots 786-1/2 up 14, merger with Alliance Unichem to be completed Monday July 31

Alliance Unichem 1,044 up 18 With Boots BAT 1,424 up 15; Dresdner Kleinwort ups to 'buy' from 'add'. Carnival 2,153 up 14
   
US peer Royal Caribbean results top Wall Street's estimates; Centrica 294-3/4 up 2, continued strength after yesterday's H1 result

FTSE 100 fallers

Prudential 567-1/2 down 28, Egg weakness clouds in-line interims

Intercontinental Hotels 867 down 33, US peer Starwood warns of softer H2

Old Mutual 161-1/2 down 2-1/2, Prudential read across

Shire 834 down 4, disappointing Q2 results lead to profit taking

Aviva 714 down 13-1/2, with Prudential Amvescap 514-1/2 down 8
   
Profit-taking after H1 results yesterday Legal & General 124 down 2-1/2
   

FTSE 250 risers

McCarthy & Stone 1,068 up 28, consortium ups bid to 1,030 pence per share; DK bidding for 10 mln shares

United Business Media 630 up 20, buys back own shares

Invensys 18 up 0-1/4, completes sales of Invensys Building Systems operations for 296 mln usd.

Qinetiq 166 up 2. Trading in line with expectations; remains on acquisition-trail Shanks 171-1/4 up 1-1/4
   
Yesterday's Q1 in line; Merrill Lynch reiterates 'buy'

FTSE 250 fallers

AMEC 283 down 12-1/4, warned over revenues from disputed payment claims - FT Inmarsat 318-1/4 down 11-3/4. Morgan Stanley cut target to 350 pence from 370, reduced full-year estimates

888 Holdings 152 down 5, continued sector weakness

Speedy Hire 916 down 34

CSR 1,091 down 44, continued weakness after Lehman downgrade yesterday

Rathbone Brothers 1,103 down 28, profit taking after H1 results yesterday

Aegis Group 121 down 3-1/4, to buy Mediapool, acquiring gross assets of around 0.9 mln eur

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Asian shares close mixed, Tokyo at 2-wk high on blue chip results

HONG KONG - Shares across the Asia Pacific region closed mixed, with Japan's Nikkei 225 index finishing at its best level in nearly two weeks as investors took heart from upbeat first-quarter results released by key blue chip firms yesterday, dealers said.
   
In Tokyo, the Nikkei 225 Stock Average closed up 163.09 points or 1.1 pct at 15,342.87, after touching a high of 15,351.79. This was its highest finish since July 11 when it settled at 15,473.82. For the week, the index rose 3.5 pct.
   
The TOPIX index of all first-section issues gained 17.60 points or 1.1 pct to 1,559.41, off a high of 1,561.06. For the week, the index was up 2.8 pct.
   
Australian shares finished lower as investors remained cautious ahead of US gross domestic product data for the June quarter due for release tonight.
   
Dealers said investor risk appetite has fallen dramatically since the market's decline on Wednesday sparked by a jump in Australia's headline consumer price index to 4.0 pct over the year to June, well above the Reserve Bank of Australia's 2-3 pct target band.
   
The S&P/ASX 200 lost 49.5 points or 0.99 pct to close at 4,958.3. The benchmark indicator closed off the day's low of 4,933.4 and below a high of 5,002.8.
   
Over the trading week the key index slipped 2.3 points or 0.05 pct.
   
Hong Kong shares were higher in afternoon trade with interest centered on China Mobile after yesterday's sharp gains on the back of a rating upgrade.
   
Dealers said the market was also boosted by gains in property stocks on hopes that the US Federal Reserve may not raise interest rates next month following fresh data indicating a softening in the US economy.
   
The US Commerce Department announced last night that new US housing sales dropped 3.0 pct last month, the first decline since February.
   
At 3.27 pm, the Hang Seng Index was up 73.22 points or 0.43 pct at 16,989.99.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower in thin trade on continuing liquidity concerns with banks and property developers hit by selling, dealers said.
   
The Shanghai A-share Index lost 13.89 points or 0.79 pct to 1,747.13 and the Shenzhen A-share Index was down 5.24 points or 1.18 pct at 440.24.
   
Share prices in Seoul ended little changed in thin trade as investors digested South Korea's mixed June production data, with the market also awaiting US GDP figures.
   
The KOSPI index closed up 0.8 points or 0.06 pct at 1,297.07, after trading between 1,301.69 and 1,292.52.
   
Investors welcomed the stronger-than-expected production growth for June but found the rapid slowdown in the construction sector and the fifth straight month-on-month decline in leading indicators cause for concern.
   
South Korean industrial output expanded 10.9 pct year-on-year in June, supported by robust sales of semiconductors, display panels and machinery equipment. The rise was slightly higher than the market consensus of 10.8 pct but slowed from a 12.1 pct rise in May.

Asian Bourse Round-Up

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Gold under pressure as dollar rebounds

LONDON - Gold prices came under pressure as the dollar bounced back from two days of falls and as investors awaited the release of key US data on growth in GDP in the second quarter.
   
At 1.07 pm, spot gold, which earlier hit a low of 627.50 usd an ounce, was quoted at 628.75 usd against 634.00 usd at the time of the Comex market close in New York yesterday. Other precious metals were also weaker.
   
Spot silver was at 11.33 usd against 11.35 usd at yesterday's close, platinum was at 1,219.00 usd against 1226.00 usd while palladium was at 310.00 usd against 314.00 usd.
   
Gold posted strong gains yesterday as the dollar came under pressure from a key US Federal Reserve report into the US economy that fuelled speculation the central bank will not be raising interest rates in August.
   
It pared those gains today, however, as the dollar strengthened against the euro, leaving the precious metal with very little short-term impetus to challenge yesterday's highs.

Copper gains ahead of strike vote at Chile's Escondida mine

LONDON - Copper prices rose ahead of a crucial strike vote later today at Chile's Escondida mine, but with the end of strike action at Mexico's La Caridad mine limiting gains.
   
At 12.00 pm, LME copper for three-month delivery was at 7,590 usd a tonne, up from 7,520 usd at the close yesterday, while nickel was up at 24,500 usd a tonne against 23,700 usd.
   
Other metals were mixed. Zinc was at 3,280 usd against 3,230 usd at the close yesterday, lead was at 1,090 usd against 1,070 usd and aluminium was at 2,504 usd against 2,522 usd.
   
Workers at Escondida, the world's largest copper mine, stepped up a slowdown on Wednesday to pressure management to improve their new contract offer. The current contract expires on Aug 2.
   
Management has said it will request mediation from government authorities to extend talks in the event of a strike vote. If government mediation fails, however, a strike could begin Aug 7.
   
But other supply woes continue to plague copper. Codelco, the world's largest copper company, still can't say when it will resume normal production after a rockslide at its giant Chuquicamata mine in northern Chile.
   
The rockslide is costing the company 960 tonnes per day in lost copper production. Early indications were that up to 60,000 tonnes might be lost, but the market is awaiting further clarification from Codelco.

Oil prices dip but supply concerns remain

LONDON - Oil prices eased slightly but remained supported by supply concerns in Nigeria and the US amid strong demand, as well as by ongoing tensions in the Middle East, analysts said.
   
A barrel of light crude lost 45 cents to $74.09 on the New York Mercantile Exchange. In London, Brent North Sea crude for September delivery lost 13 cents to 74.88 usd per barrel in electronic trading.
   
Prices are winning support from "a combination of Nigeria's disruptions and the latest US inventory report which had quite a large drop in gasoline stocks and not much movement on the crude front", Global Insight analyst Simon Wardell said in London. "And the market is reacting to the situation in the Middle East."
   
Supporting prices also is strong demand for gasoline, or petrol, in the US.
   
Over the past four weeks, US demand for gasoline has risen by 1.8 percent from the same period in 2005, the US Department of Energy said on Wednesday.
   
Gasoline statistics are under heightened scrutiny because of peak US demand as many Americans hit the roads for their summer vacations.
   
The DoE added Wednesday gasoline stocks dropped by 3.2 mln barrels to 211 mln in the week to July 21, while the market had expected no change.
   
US crude oil inventories were stable at 335.5 mln barrels. Analysts had forecast a fall of 500,000 barrels.
   
Commonwealth Bank of Australia analyst Gorey meanwhile said tensions over Iran were also "a big part" of why oil prices have remained above 70 usd.
   
Concerns that the violence could spread to Iran and other major crude-producing nations in the Middle East saw oil prices soar to all-time highs above 78 usd earlier this month.

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