US & World Daily Markets Financial Briefing 31-07-2006

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Stocks down slightly in early trading

NEW YORK - Stocks are lower as traders took some of last week's gains off the table, though Apple Computer Inc. saw the benefit of a broker upgrade in early trading.
   
In the opening minutes, the Dow Jones industrials were down 2.08 points at 11,217.62, the S&P 500 lost .02 of a point to 1,278.53, and the Nasdaq was unchanged at 2,094.14.
   
On Friday, the Dow industrials rallied 119 points, the S&P 500 rose 15 points and the Nasdaq Composite rose 39 points after a weaker-than-forecast reading of second-quarter gross domestic product led to speculation the Federal Reserve will soon step on the rate-hike brakes.
   
Chicago PMI, seen falling to 55.7 percent from 58.5 percent, is the top data release of the day. 

Stocks in focus

Of companies in focus, Apple Computer rose nearly 2 percent in Frankfurt after Banc of America Securities upgraded it to buy from neutral and raised its price target to $79 from $68, citing strong demand for MacBooks and iPod digital music players.

The broker told clients that depending on whether Apple can generate enough additional unit sales in the second half, it sees upside potential to earnings from iPods of 8 cents to 12 cents a share.
   
SanDisk over the weekend agreed to swap $1.3 billion of its own stock for M-Systems Ltd, another flash memory chip making firm that's been battling stock-option accounting problems.
   
Coach may see gains after a Barron's article suggested it will lift its earnings outlook on Tuesday. Its chief executive told the magazine that it will deliver a "fantastic" quarter.
   
Health-benefits provider Humana reported a stronger-than-forecast 10 percent profit rise and held to its 2006 outlook. But it also said that marketing costs could be up to 15 cents-a-share higher than forecast.
   
Scottish Re may be in for some pressure after it warned of a $130 million operating loss in the second quarter, that third- and fourth-quarter earnings wouldn't meet its earlier forecast and that it suspended its dividend. Its CEO, Scott E. Willkomm, resigned in response.
   
Teck Cominco lifted its bid for Inco to C$82.50 a share, as the Canadian miner battles Phelps Dodge to buy Inco.
   
HSBC Holdings, the world's third-largest bank, reported a 15 percent profit rise on investment banking gains.

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Dollar continues to fall; euro boosted by strong data

LONDON - The dollar was weaker, touching 19-day lows against the euro on continued fallout from weak US second quarter GDP data on Friday, while strong euro zone data this morning helped support the euro.
   
Showing annual growth well below expectations at 2.5 pct, Friday's US GDP numbers cast further doubt over whether US interest rates will rise much further, if at all.
   
In addition, events elsewhere are also weighing on the currency, including worries over the escalating violence in the Middle East and market speculation that China could soon announce a move to allow the yuan to appreciate further against the dollar.
   
For today, markets will be looking at the release of the latest Chicago PMI index of manufacturing activity in the region, then the nationwide ISM survey tomorrow and key US employment figures on Friday.
   
Meanwhile, the euro was helped by strong euro zone inflation and confidence indicators this morning, making an interest rate rise by the European Central Bank this week all but a certainty and leaving a more hawkish outlook for interest rates for the rest of the year.
   
Euro zone annual HICP inflation remained at 2.5 pct in July, still well above the ECB's target of just below 2.0 pct, while the euro zone economic sentiment indicator hit another record high in July, compared with expectations for a slight fall in the index.
   
"Aside from confirming the case for a 25 basis point ECB hike on Thursday, August 3, today's stronger-than-expected sentiment data, together with inflation still well above target, suggests that the ECB will likely be keen to continue withdrawing monetary accommodation," said Bank of America economist Matthew Sharratt.
   
The ECB could increase the pace of rate hikes to every two months rather than every quarter, Sharratt believes.

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Asian shares close higher following Wall St, positive earnings results

HONG KONG - Shares across the Asia-Pacific region closed higher following the jump on Wall Street last Friday and positive corporate earnings reports, dealers said.
   
Tokyo share prices ended higher, extending gains for the third straight trading day, because investors took heart from a string of strong corporate quarterly earnings reports and stronger-than-expected industrial output data for last month, dealers said.
   
The Nikkei 225 Stock Average closed 113.94 points or 0.7 pct higher at 15,456.81, after touching a high of 15,536.32. The TOPIX index of all first-section issues gained 12.60 points or 0.8 pct at 1,572.01, off a high of 1,580.14.
   
The industrial output index rose to 105.7 last month, up a seasonally adjusted 1.9 pct from May, beating market expectations of a 1.2 pct increase.
   
Australian shares closed higher after investor sentiment was buoyed by Friday's jump in New York but dealers said investors remain cautious ahead of the expected announcement on Wednesday that the Reserve Bank of Australia will raise official interest rates by 25 basis points to 6.00 pct.
   
They said inflationary concerns will likely weigh on the market for the remainder of the week ahead of the RBA's quarterly monetary statement due on Friday and a chance that further rate hikes are signalled.
   
The S&P/ASX 200 rose 27.7 points or 0.56 pct to close at 4,986.0. The benchmark indicator closed off the day's high of 5,027.1 and above a low of 4,963.7.
   
But the key index lost 87.9 points or 1.73 pct over the month of July.
   
Hong Kong shares were higher in afternoon trade, in line with Wall Street's gains. HSBC and its unit Hang Seng Bank were also in focus ahead of their first-half results announcements due after the market close.
   
At 3.27 pm the Hang Seng Index was up 65.60 points or 0.39 pct at 17,020.64.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower on continuing liquidity concerns amid the rapid pace of IPO approvals, with property developers and energy companies losing ground, dealers said.
   
The Shanghai A-share Index tumbled 51.98 points or 2.98 pct to 1,695.15 and the Shenzhen A-share Index was down 17.89 points or 4.06 pct at 422.35.
   
Seoul shares closed little changed, with solid early gains wiped out by late profit-taking by institutional investors, dealers said. Wall Street's stronger close on Friday boosted initial sentiment here, sending the index above 1,310 points at one stage.
   
This raised hopes that the market will finally break through long-term resistance of 1,300 points but the market soon lost momentum to close at its low for the day, with foreign investors' futures positions serving as a dampener.
   
The KOSPI index was up 0.75 points or 0.06 pct at the low of 1,297.87, after rising as high as 1,316.12.

Asian Bourse Round-Up

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Oil

Oil prices gain with focus on Mideast, US demand

LONDON - World oil prices climbed with the market waiting to see whether a ceasefire would occur in the Middle East and if a slowdown in US economic growth would weigh on crude demand, analysts said.
   
New York's main contract, light sweet crude for delivery in September, rose 19 cents to 73.43 usd per barrel in electronic deals before the official opening of the US market.

In London, Brent North Sea crude for September delivery gained 34 cents to 73.73 usd per barrel in electronic trading.
   
On Monday, Israel rejected mounting pressure for a ceasefire in its 20-day war on the Hezbollah militia in Lebanon, despite being thrown onto the defensive after its warplanes killed 52 civilians in a raid that sparked outrage around the world.
   
While Israel ruled out an immediate ceasefire it pledged a 48-hour halt to air strikes.
   
However Israel's promise was quickly broken when its forces carried out an air strike in support of a ground operation near the Lebanese border village of Taibe, an army spokesman said.
   
Concerns that the high level of tension in the area might harden attitudes in big crude-producing nations in the Middle East caused oil prices to soar to all-time high points above 78 usd earlier this month.
   
They have since fallen considerably on profit-taking and news on Friday of slowing economic growth in the US.
   
US economic growth slowed to 2.5 pct in the three months to June, government data showed Friday, as consumers turned nervous in the face of sky-high fuel prices and a cooling property market.
   
"There are many that are now concerned about faltering demand in the US, the world's largest consumer of oil," Sucden analyst Michael Davies said in London.
   
Elsewhere on Monday, Iran said it would continue to import petrol, despite previous announcements that OPEC's number-two oil producer would likely slash the multi-billion-dollar budget for imports and start rationing fuel.
   
"I think the current situation will continue," Oil Minister Kazem Vaziri-Hamaneh told state television. He was responding to a question whether a new decision had been made on how to cover the shortage of petrol in the remaining months of the current Iranian year ending in March 2007.
   
Iran's refineries have a capacity of 40 mln litres of petrol a day, but demand is over 70 mln litres a day. The shortfall has up to now been met by spending billions of dollars each year on imported petrol.

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Copper gains almost 2 pct as Escondida workers vote for strike

LONDON - Copper gained almost 2 pct, nearing the key 8,000 usd a tonne level, after workers at Escondida, the world's biggest copper mine, voted for strike action late Friday.
   
At 12.26 pm, LME copper for three-month delivery was at 7,800.00 usd a tonne, up from 7,760.00 usd at the close Friday, while nickel was up at 25,200.00 usd a tonne against 24,700.00 usd. Other metals were also higher.
   
Zinc was at 3,340.00 usd against 3,300.00 usd at the close yesterday, lead was at 1,100.00 usd against 1,080.00 usd, aluminium was at 2,535.00 usd against 2,528.00 usd and tin was at 8,450.00 usd against 8,350.00 usd.
   
About 97 pct of workers at Escondida in Chile, majority owned by BHP Billiton, voted for strike action Friday to demand a new contract offer from the company that reflects soaring copper prices.
   
Last week, copper found support from a rockslide at Codelco's giant Chuquicamata mine in northern Chile, which is costing the company 960 tonnes per day in lost copper production.
   
Codelco, the world's largest copper company, has said it will take weeks to restore production. Early indications were that up to 60,000 tonnes might be lost overall, but the market is awaiting clarification from the company.
   
Turning to nickel, analysts said the metal was finding support after Inco Ltd said Friday it has begun an "orderly shutdown" of its production facilities at the Voisey's Bay mine in Canada following a strike.

Gold off day highs on hopes of cease-fire in Israel-Lebanon
     
LONDON - Gold prices fell off day highs to trade largely unchanged from Friday's close as safe haven buying ebbed on hopes a cease-fire in the deadly conflict between Israel and Hezbollah militants will be agreed soon.
   
At 1.58 pm, spot gold, which earlier hit a high of 639.10 usd an ounce, was quoted at 635.68 usd, barely changed from 635.75 usd at the time of the Comex market close in New York yesterday. Other precious metals were mixed.
   
Spot silver was at 11.40 usd against 11.33 usd at Friday's close, platinum was at 1,228.50 usd against 1,222.00 usd while palladium was unchanged at 312.50 usd.
   
Gold posted gains in Asia earlier amid speculation Friday's much lower than expected US GDP reading may lead the Fed to end its rate hike cycle - a move that would pressure the dollar while supporting gold.
   
The dollar remained weak, continuing losses suffered last week in the wake of the disappointing US GDP data, but Moore said the temporary halt in Israel's air raids on Lebanon was offsetting this.
   
A weaker dollar usually supports gold as it increases its appeal as a hedge against inflation. But a lessening in geopolitical tensions pressures the precious metal - traditionally seen as a safe haven asset.

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