US & World Daily Markets Financial Briefing 31-05-2006

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U.S. stocks stage a slight rebound; Fed minutes awaited

NEW YORK - U.S. stocks rebounded in opening trade Wednesday after suffering heavy losses in the prior session, but investors are expected to mark time ahead of the release of the minutes of the Federal Reserve's most recent meeting on interest rates.
   
They will be hoping the minutes clarify the central bank's view on inflation, economic growth and on the prospects of an end to the current round of rate hikes.
   
The Dow Jones Industrial Average was up 36 points at 11,129, a day after posting its biggest one-day point drop in two weeks.
   
The Nasdaq Composite Index rose 7 points to 2,171 while the S&P 500 Index gained 4.5 points at 1,264.30.
   
If the Nasdaq ends Wednesday at or below its Tuesday finish, it will mark its poorest May performance since May 2000, when the index gave up 11.9% of its value. The S&P 500 has given up 3.9% so far this month, and is on track to log its worst May performance in 22 years.
   
Stocks are getting an early lift "because we are in an oversold condition and because OPEC made an announcement that they won't cut production, making for a pullback in oil prices," said Art Hogan, chief market strategist at Jefferies & Co.
   
However, the strategist said he believes the market is in for a longer stretch of volatility "because we are in a big guessing game over the Fed." He noted that the central bank will not make its next rates decision until June 29, making for a long period of uncertainty.
   
On Tuesday stocks broke a three-session run of gains, after a rise in oil prices, a falling dollar and a disappointing sales forecast from Wal-Mart Stores Inc. raised questions about the outlook for inflation and economic growth.
   
The market has been hemorrhaging value since May 10, when the FOMC, the Federal Reserve's policy panel, put in place its 16th consecutive quarter-point rate increase since June 2004, leaving the federal-funds rate at 5%.
   
The highlight of the session could be the 2 p.m. Eastern release of the minutes from the May FOMC meeting. Investors are hopeful the minutes will send a clearer signal about the Fed's monetary-policy plans.
   
Stocks on the move
   
The retail sector remained a focus after Wal-Mart's 2.7% decline on Tuesday. Recent weak consumer-confidence surveys have fed fears about a consumer slowdown.
   
Fellow retailer Costco Wholesale Corp. fell 1.6% to $52.72. The company reported third-quarter net income of 49 cents a share, one penny below analysts' projections.
   
The pharmaceutical and biotech sector was also in the spotlight following the Food and Drug Administration clearing Omnitrope, a hormone used to treat growth disorders.
   
Novartis's Sandoz, the maker of Omnitrope, said the case establishes a precedent to allow generic biotechnology drugs. The FDA issued a statement, however, specifically denying that Omnitrope is a generic biologic.
   
Pfizer Inc. stock could benefit as the company makes a similar hormone. U.S.-listed shares of Novartis rose 1% while shares of Pfizer tacked on 12 cents to $23.71.

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Dollar modestly lower ahead of Fed meeting minutes

The dollar was modestly lower against major foreign-exchange counterparts Wednesday with market participants eagerly awaiting the release of the minutes from the most recent Federal Reserve meeting for clues to the U.S. interest-rate outlook.
   
Markets worldwide have been in a tailspin since the last U.S. interest-rate increase, in which the Fed lifted rates to 5% and left markets in the dark as to whether it would go for 17 rate rises in a row. The minutes are due at 2 p.m. Eastern.
   
In early New York trading, the euro was at $1.2871 compared with $1.2866 late Tuesday. The dollar changed hands at 112.02 yen versus 112.16 yen. The British pound was fetching $1.8749 against $1.8831. The dollar traded at 1.2121 Swiss francs versus 1.2113 francs.
   
At 10 a.m. Eastern, traders will review data on business activity in the Chicago area. Economists polled by MarketWatch expect the Chicago purchasing-managers index fell to 56.1% in May from 57.2%.
   
Yen benefits from PBoC report
   
The yen earlier briefly rose after China's central bank indicated it would deepen foreign-exchange reform and seek greater flexibility for the yuan, also known as the renminbi.
   
Japan's yen is often traded as a proxy for the yuan and usually strengthens when speculation about yuan appreciation rises.
   
In its first-quarter monetary policy report, the People's Bank of China also reaffirmed that "gradualism" will remain and that the yuan would remain "basically stable at a reasonable and balanced level."
   
The central bank also said it would take innovative steps to bring its balance of payments surplus into equilibrium.
   
The yuan has gained about 1% against the U.S. dollar since China revalued its currency by 2.1% and abandoned its decade-long currency peg last July. The movement in the yuan frustrates a number of U.S. politicians, who argue that the Chinese currency remains under-valued.
   
Analysts say treasury secretary nominee Henry Paulson is expected continue to advocate a more flexible renmimbi and to maintain the current U.S. foreign-exchange policy.
   
Also on Wednesday, Japanese Finance Minister Sadakazu Tanigaki said he did not expect a major change in US foreign-exchange policy under Paulson and that policies discussed at past Group of Seven meetings would remain in place.
   
Solid eurozone data
   
In European trading, the euro strengthened on the back of better-than-expected German unemployment data. But the gains later fizzled as traders locked in profits after the currency's recent strength.
   
The Federal Labor Office said the number of jobless claims fell by 93,000 people last month, placing Germany's adjusted unemployment rate at 11% compared to 11.3% in April.
   
Separately, the Federal Statistical Office said April's retail sales, when adjusted for seasonal and calendar effects, improved 2.8%.
   
The number of unemployed was smaller than forecast, and retail sales were stronger than economists had anticipated.
   
Additionally, eurozone consumer price inflation unexpectedly rose to 2.5% on a year-over-year basis, from 2.4% in April.
   
European Central Bank council member Nout Wellink said Wednesday that it is clear that "we should tighten monetary policy in the period ahead."

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The European Markets at 12.00 BST

London - London shares remained higher at midday, rebounding sharply after an early drop, as consolidation hopes across utilities and blue-chip bargain hunting  helped lift sentiment after yesterday's triple-digit battering, dealers said.
   
By 12.20 pm, the FTSE 100 index was up 31.3 points at 5,683.3, having hit an early low of 5591.5, while the FTSE 250 index also picked itself out of the red, trading 65.0 points higher at 9,300.5.

Frankfurt - Shares recovered somewhat from yesterday's sharp fall and losses at the opening to trade slightly higher in midday trade, as US stock futures pointed to a recovery on Wall Street this afternoon and amid a sharper-than-expected fall in the German jobless rate in May, dealers said.
   
At 11.21 am, the DAX 30 index was 7.56 points or 0.13 pct higher at 5,629.99, having moved between 5,533.12 and 5,643.90 so far this session.

Paris - Shares were slightly higher midday, rallying as some investors returned in search of bargains that were over-sold during the slump late yesterday afternoon, dealers said.
   
At 12.54 pm, the CAC-40 index was 1.03 points or 0.02 pct higher at 4,894.90, after touching 4,924.51 earlier, on volume of 2.36 bln eur.
  
Amsterdam - Shares were broadly up at midday with investors looking to a higher opening of Wall Street as US futures pointed up, while bargain-hunting after yesterday's losses also played a part, dealers said.
   
At 12.10 pm, the AEX was up 2.58 points or 0.59 pct to 437.28 after opening at 431.70 and reaching an earlier high of 439.27.

Madrid - Share prices were higher in moderate midday trade as blue chips rebounded from recent heavy losses, while broadcasters Telecinco and Antena 3 remained under pressure, dealers said.
   
At 11.54 am, the IBEX-35 index was up 80.20 points at 11,245.8, after trading in a range of 11,049-11,270, on turnover of 1.47 bln eur.

Milan -  Share prices were higher midday, rebounding from initial losses, with Telecom Italia higher in a sector rally and RCS MediaGroup depressed by a share placement, dealers said.
   
At 12.16 pm, the Mibtel index rose 0.71 pct to 27,670 points and the S&P/Mib was up 0.82 pct at 36,088, while volumes stood at 2.64 bln eur.

Stockholm - Shares were flat in midday trade as the market clawed back earlier losses amid early indications of an opening rebound on Wall Street, brokers said.
   
At 12.30 pm, the OMX Stockholm index was up 0.17 pct at 304.95 and the OMX Stockholm 30 up 0.18 pct at 939.12. Turnover was 13.739 bln skr.

Helsinki - Helsinki shares were lower in midday trade, under pressure after losses on Wall Street overnight, dealers said.
   
At 12.03 pm, the OMX Helsinki 25 was 0.75 pct lower at 2,419.03 and the OMX Helsinki was down 0.50 pct at 8,673.47. Trading volume was 338 mln eur.

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Asian shares close down following Wall St; Tokyo briefly hits 3-month low

HONG KONG - Markets across the Asia Pacific region ended lower following Wall Street's overnight slump, with concerns that another bout of global selling lies ahead, dealers said.
   
Japan's benchmark Nikkei 225 index hit a three-month intraday low as the pullback in New York fuelled concerns of a possible slowdown in the US economy following a spike in the price of oil and weak economic data, they added.
   
They cited renewed fears of further capital repatriations out of Asia by large institutional investors.
   
The blue-chip Nikkei 225 Stock Average closed down 392.12 points or 2.5 pct at 15,467.33, after touching 15,442.53, its lowest intraday mark since hitting 15,389.58 on Feb 20.
   
The TOPIX index of all first-section issues fell 32.82 points or 2.0 pct to 1,579.94.
   
"Until the middle of last week risk money (from institutional offshore investors) had been withdrawn from emerging markets but then in the second half of the week some of it started to flow back. Now it seems that the pullout has resumed again," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Securities.
   
Dealers said the local market is also under threat from sizeable long margin positions taken by some retail investors.
   
Australian shares ended sharply lower following Wall Street and investor sentiment was weakened further by a drop in base metal prices in London trading, dealers said.
   
The S&P/ASX 200 plunged 103.7 points or 2.03 pct to close at 5,001.7, dropping further from the May 11 record close of 5,364.5.
   
The benchmark indicator closed at the day's low and off a high of 5,079.7. Over the month the index dropped 257.8 pts or 4.88 pct.
   
Markets in Hong Kong and South Korea were closed for holidays.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower in cautious trade, as profit taking in metals and consumer goods offset gains in autos, dealers said.
   
The Shanghai A-share Index fell 16.71 points, or 0.96 pct, to 1,724.34 on turnover of 32.94 bln yuan and the Shenzhen A-share Index was down 2.23 points at 433.15 on turnover of 21.49 bln yuan.
   
New Zealand shares were less affected by the global sentiment, closing 0.10 pct lower after a late local buying surge which largely offset the impact of sharp losses in foreign markets, dealers said.
   
They said New Zealand stocks do not have as much vulnerability to overseas sentiment as many other markets and after falling most of the day, some major stocks made up the lost ground in late trade.
   
The benchmark NZSX-50 gross index fell 3.44 points to 3,613.59.
   
Singapore share prices were trading sharply lower in afternoon trade, also following Wall Street, dealers said.
   
At 3:33 pm The Straits Times Index was down 62.81 points, or 2.57 pct.

Asian Bourse Round-Up

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Gold futures rise, ready to mark a four-session win

SAN FRANCISCO - August gold climbed $3.20 to $663.70 an ounce in morning trading on the heels of a three-session rise that's added more than $16 to its value. Weakness in the U.S. dollar has provided support.

But "gold's failure to find significant upside traction yesterday suggests more
consolidation is on the agenda with $635-$675 set to provide the near-term trading range," James Moore, an analyst at TheBullionDesk.com said in a note to clients.

July silver fell 6 cents to $13.01 an ounce, while July copper tacked on 5.6 cents to $3.73 a pound.

The front-month crude futures contract last was down 56 cents at $71.47 a barrel, benefiting from the OPEC announcement.
   
Treasurys were lifted by safe-haven interest linked to the overall weak state of the stock market this month. The benchmark 10-year Treasury note last was 4/32 higher at 100-15/32 with a yield of 5.06%.

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