US & World Daily Markets Financial Briefing 30-06-2006

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Stocks open higher on inflation data

NEW YORK - Stocks rose in early trading Friday as investors were heartened by upbeat inflation news one day after a big rally gave the major indexes their largest gains in more than three years.
 
In the first hour of trading, the Dow Jones industrial average rose 38.10, or 0.34 percent, to 11,228.90. On Thursday, the Dow surged 217.24, or 1.98 percent, to 11,190.80, its biggest single-day jump since March 21, 2003, when it added 235.37 points.
   
Broader stock indicators were higher. The Standard & Poor's 500 index rose 3.20, or 0.25 percent, to 1,276.07, after gaining 26.87, or 2.16 percent, to close at 1,272.87, its largest point gain since March 17,2003. The Nasdaq composite index rose 6.51, or 0.3 percent, to 2,180.89 after gaining 62.54, or 2.96 percent, to close at 2,174.38, its largest point gain since July 27, 2002.
   
Bonds were flat, with the yield on the 10-year Treasury at 5.20 percent Thursday.
Crude oil futures rose. A barrel of light crude was quoted at $73.53, up 1 cent, in pre-opening trading on the New York Mercantile Exchange.
   
The Russell 2000 index of smaller companies rose 3.69 points, or 0.52, to 718.01.
   
In afternoon trading, Britain's FTSE 100 was up 1.28 percent, Germany's DAX index was up 1.94 percent, and France's CAC-40 was up 1.93 percent.
   
Stocks in focus

In company news, General Motors Corp. rose $2.45 to $29.89 after major holder Tracinda Corp. asked the auto maker to explore joining an alliance with France's Renault and its sister company, Japan's Nissan Motor Co. Ltd.
   
Palm may decline after the maker of the Treo phone's first-quarter sales forecast disappointed investors. Blackberry maker Research In Motion may rise, however, after posting a 35 percent sales rise and meeting Street expectations on top-line growth.
   
On the deal front, RSA Security agreed to be bought by $2.1 billion in cash by EMC Corp., while Barr Pharmaceuticals raised its offer Croatia's Pliva to $2.3 billion.
   
Genentech is awaiting a Food and Drug Administration decision on its Lucentis macular degeneration drug.

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Dollar falters after subdued US data

LONDON - The dollar succumbed to a renewed bout of selling as further signs of an economic slowdown in the US emerged just as the Federal Reserve has begun to voice its concern about the growth outlook.
   
The Commerce Department reported that consumer spending growth slowed sharply in May to just 0.4 pct with higher energy and borrowing costs, as well as the impact of a cooling housing market, taking their toll.
   
Meanwhile, inflation as measured by the personal consumption expenditure (PCE) price deflator did little to ratchet up fears. It was unchanged in the year to May at 2.1 pct, in line with market expectations but still just above the Fed's comfort zone of 1.0-2.0 pct.
   
"The data added to the bearish tone after the Fed seemed to hint at a pause," said Paul Bednarczyk, currency strategist at 4CAST.
   
Though the quarter point hike in the Fed funds rate to 5.25 pct was expected, the accompanying statement proved to less hawkish than expected, with the rate-setting Federal Open Market Committee cautioning about the outlook for growth in its first paragraph before a reference to elevated readings in core inflation measures in the second.
   
"The dollar suffered large losses in the aftermath of the FOMC statement which market participants interpreted as a signal of an imminent pause in the monetary tightening cycle," said Bank of Tokyo-Mitsubishi economist Derek Halpenny.
  
"The dropping of the sentence 'further policy firming may yet be needed to address inflation risks' was the key focus of the market and the probability of an August rate hike has fallen from over 90 pct to about 65 pct," he added.
   
The focus on the Fed over recent days has masked a further ratcheting up in European interest rate forecasts following strong euro zone economic news, particularly in Germany, and hawkish commentary from ECB officials, most notably from Yves Mersch, Luxembourg's central bank governor.
   
The data and the commentary have combined this week to reinforce expectations that the central bank will itself raise its main cost of borrowing in August by a quarter point to 3.00 pct. The ECB has raised interest rates a quarter point every three months since December. If that profile were sustained, another hike would not be due until September.
   
However, this morning's German retail sales data for May brought the strong run to a halt, though a solid euro zone economic sentiment indicator for June helped offset the impact.

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Elsewhere, the pound was buoyed by an unexpected upward revision to UK economic growth in the first quarter raised expectations that the Bank of England's rate-setting Monetary Policy Committee may raise its main cost of borrowing this year.
   
The office for National Statistics said UK GDP growth during the first three months of the year was revised to a quarterly 0.7 pct from 0.6 pct previously.

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Asian shares close sharply higher on easing of rate fears

HONG KONG - Shares in the Asia-Pacific region closed higher after the US Federal Reserve signalled that it may soften its stance on interest rates, dealers said.
   
This was despite a hike in US interest rates yesterday by 25 basis points to 5.25 pct as widely expected, the 17th consecutive tightening by the US central bank.
   
Tokyo share prices finished sharply higher as investors took comfort in the rally on Wall Street overnight after the Federal Reserve's outlook statement, dealers said.
   
The Nikkei 225 Stock Average closed up 384.03 points or 2.5 pct at 15,505.18, after touching a high of 15,521.22, and settling above the 15,500 mark for the first time since June 5. For the week, the index added 2.5 pct.
   
The broader TOPIX index of all first-section issues gained 39.21 points or 2.5 pct to 1,586.96, its session high. For the week, the index increased 2.6 pct.
   
"Stock prices rallied as investor sentiment here was cheered by sharp gains in US markets, which was inspired by the Fed's statement," said Hideo Mizutani, chief strategist at Sieg Securities.
   
Nikko Cordial Securities equity head Hiroichi Nishi said investors got a sense of relief as uncertainty over US monetary policy appears to have eased for now.
   
Australian share prices closed sharply higher as global equity markets rebounded following the US Federal Reserve's comments, dealers said.
   
They said the local market leapt from the open on the lower inflationary concerns, with the key S&P/ASX 200 index jumping 2.32 pct to a high of 5,113.1.
   
Dealers said investors bought major banking stocks and resource stocks were also in demand as metal prices recovered some of a recent sell-off.
   
They said today's price action provides a strong growth base for Australian equities heading into a new June fiscal year on Monday after a volatile few months.
   
The S&P/ASX 200 ended up 76.7 points or 1.53 pct to 5,073.9.
   
Over the trading week the key index rose 109.0 points or 2.20 pct and over the financial year to June 30, it gained 796.4 points or 18.62 pct.
   
Hong Kong shares were sharply higher in afternoon trade, led by property and bank stocks after the US Federal Reserve's decision on interest rates, dealers said.
   
At 3.30 pm the Hang Seng Index had risen 368.19 points, or 2.32 pct, at 16,233.41.
   
In mainland China, A-shares in Shanghai and Shenzhen closed higher although early gains due to follow-through buying were tempered by profit-taking, with power generators and metals plays in demand, dealers said.
   
The Shanghai A-share Index added 0.70 points or 0.04 pct to 1,758.06 on turnover of 28.45 bln yuan and the Shenzhen A-share Index was up 0.73 points or 0.16 pct at 451.21 on turnover of 17.50 bln yuan.
   
Seoul share prices ended sharply higher, rising above 1,290 points, on the comments from the US Federal Reserve, dealers said.
   
The market remained strong throughout the session to close near its high for the day, as foreign investors returned for the first time since June 7, aggressively picking up large cap IT and financial stocks.
   
The KOSPI index closed up 32.13 points or 2.54 pct at 1,295.15, after moving between 1,295.43 and 1,287.15.

Asian Bourse Round-Up

For a full list of closing fugures, click here

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Gold nears 600 usd as dollar remains under pressure from Fed statement

LONDON - Gold prices rose as the dollar remained under pressure after the US Federal Reserve, which yesterday raised interest rates by a further 25 basis points as expected, appeared to soften its stance on future rate hikes.
   
At 12.23 pm, spot gold, which earlier hit a high of 602.50 usd an ounce, was quoted at 599.70 usd against 586.90 usd at the time of the COMEX market close yesterday.
   
Other precious metals also gained. Spot silver rose to 10.71 usd against 10.42 usd, platinum was up at 1,213.50 usd from 1,191.00 usd and palladium was up at 314.50 usd against 308.00 usd.
   
Yesterday, gold surged to 600.50 usd in aftermarket trade as the statement accompanying the Fed's rate verdict was interpreted as less hawkish than expected.
   
The Fed, which first cautioned about the outlook for growth before making reference to elevated inflation levels, said any additional rate increases will depend on the upcoming inflation and growth data.
   
The comments sent the dollar down against most major currencies and have left it still weak today.
   
"Gold has continued to meet resistance ahead of the 100-day moving average (603.60 usd) overnight although it has briefly touched 602.55 usd," said TheBullionDesk analyst James Moore.
   
"However, with many traders in the US potentially taking a long weekend and concerns still raging over the Iran/North Korea nuclear arguments and oil-driven inflation, the market looks set to establish a base above the 600 usd mark."
   
The US markets are closed early Monday and all day Tuesday for the Independence Day holiday, and with today's trade signalling the end of the quarter, month and half year, analysts expect book squaring and muted activity over the session.
   
Looking further ahead, however, UBS Investment Bank analyst John Reade warned against expecting unchecked upward gains in gold, saying the Fed statement introduced "two-way risk" into the market.
   
"Inflationary data, slower growth or any reversion to hawkish comments from the Fed could knock the metals back in the next month," he warned, but conceded that "it is hard to be anything other than positive for today."

Base metals continue higher as rate hike fears sibside

LONDON - Base metals continued higher, building on yesterday's strong gains, after investors took the latest policy statement from the US Federal Reserve as signalling a pause in rate hikes ahead.
   
At 1.55 pm, LME copper for 3-month delivery was up at 7,470.00 usd a tonne against 7,300.00 usd at close yesterday, while nickel rose to 21,350.00 usd from 20,750.00 usd and zinc grew to 3,230.00 usd against 3,100.00.

Copper prices have risen some 70 pct since the end of last year, but prices have come significantly off their May 11 peak of 8,800 usd on inflation and demand worries.

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