US & World Daily Markets Financial Briefing 03-08-2006

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European rate hikes weigh on Wall Street

NEW YORK - Wary investors sent stocks lower Thursday after a pair of European central banks raised interest rates, increasing expectations on Wall Street that the Federal Reserve would follow suit next week.
   
The European Central Bank's quarter-percentage-point rate hike was anticipated, leaving rates at 3 percent, but a similar hike by the Bank of England to 4.75 percent due to rising prices and stronger economic growth there took market watchers by surprise.
   
The stock market's move lower came despite a slight rise in weekly first-time unemployment claims. Analysts say a softening labor market could allow the Fed stop raising rates. First-time claims rose to 315,000, up from 301,000 the previous week.
   
In midmorning trading, the Dow Jones industrial average fell 28.10, or 0.25 percent, to 11,171.83. Broader stock indicators also fell. The Standard & Poor's 500 index lost 5.17, or 0.4 percent, to 1,273.38, and the Nasdaq composite index dropped 9.84, or 0.47 percent, to 2,068.97.
   
Bonds fell in response to the European rate hikes, with the yield on the benchmark 10-year Treasury note rising to 4.98 percent from 4.96 percent late Wednesday.    

Crude oil futures headed lower after weather forecasters said Tropical Storm Chris was weakening and may not affect refineries and oil rigs in the Gulf of Mexico. A barrel of light crude was quoted at $74.90, down 91 cents, in electronic premarket trading on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies was down 4.68, or 0.67 percent, to 692.13.
   
In afternoon trading, Britain's FTSE 100 was down 1.53 percent, Germany's DAX index lost 1.27 percent, and France's CAC-40 dropped 1.08 percent.

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A pair of economic reports pointed to a slowing economy, which could bode well for a pause in rate hikes. The Institute for Supply Management's service sector index for July came in at 54.8, lower than the 56.5 reading expected by economists, as well as June's 57 reading.

And factory orders for June, as reported by the Commerce Department, rose 1.2 percent, better than May's 0.7 percent increase but less than the 1.7 percent jump expected.
   
Investors' rate worries overshadowed the monthly flood of sales reports from
the nation's retailers.

Wal-Mart Stores Inc. added 39 cents to $44.76 after reporting a 2.4 percent gain in same-store sales, or sales at stores opened at least a year. And Limited Brands Inc., operator of retailers such as Victoria's Secret and Bath & Body Works, jumped $1.32, or 5.4 percent, to $25.81 after posting a 7 percent jump in same-store sales.
  
Rival Target Corp. posted a lower-than-expected 3.1 percent increase in same-store sales, but saw its stock rise 11 cents to $45.89. Gap Inc. lost 62 cents, or 3.6 percent, to $16.50 after the clothing retailer said its sales dropped 4 percent for July.
     
Declining issues outnumbered advancers by nearly 3 to 1 on the New York Stock Exchange, where volume came to 197.72 million shares, compared with 195.44 million traded at the same point Wednesday.
   
Starbucks is expected to drop sharply after reporting a surprisingly slow 4 percent July same-store sales rise. Costco Wholesale met forecasts with a 7 percent same-store rise.
   
Elsewhere, Ford Motor Co. late Wednesday revised its second-quarter loss to $254 million, or 14 cents a share, twice the $123 million, or 7 cents a share, loss it reported July 20. Ford said the move reflects a wider estimated pension curtailment loss than first reported and "subsequent events" affecting its balance sheet.
   
Prudential Financial may see pressure after the insurer didn't meet second-quarter profit forecasts.
   
Unilever, the consumer products giant, posted a 35 percent profit rise but disappointed investors with its operating margin.
   
Tyco International Ltd. reported an in-line 27 percent profit decline but missed next quarter's earnings estimates by a penny. It also said that it has agreed to sell its printed circuit group business to TTM Technologies Inc. for $226 million in cash.
   
Signet rallied in London on a report from a U.K. newspaper that two private-equity firms were planning a $4.3 billion bid.

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Asian shares close mixed ahead of US jobs data and rate decisions

HONG KONG - Shares across the Asia-Pacific region ended mixed, with markets generally cautious ahead of the release of monthly US jobs data tomorrow and uncertainty over interest rates, dealers said.
   
Tokyo shares finished little changed ahead of the July jobs data and the Federal Reserve's policy meeting next week, dealers said.
   
The Nikkei 225 Stock Average closed up 6.08 points at 15,470.37, while the TOPIX index of all first-section issues dropped 0.12 points to 1,569.53.
   
Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Securities, said investors took to the sidelines ahead of key events in the US, leaving the market sluggish.
   
In particular, he said the market will be closely watching the Fed's meeting next Tuesday.
   
Australian shares ended sharply higher as the company reporting season got underway, reversing investor sentiment from yesterday's sell-off, dealers said.
   
They said solid earnings reports today had raised expectations of strong announcements to follow over the next four weeks.
   
Dealers said bullish investor sentiment offset lingering interest rate concerns following yesterday's 25 basis point interest rate hike to 6.00 pct by the Reserve Bank of Australia.
   
The S&P/ASX 200 jumped 66.0 points or 1.34 pct to close at 4,997.5. The benchmark indicator closed at the day's high and above a low of 4,932.6.
   
Hong Kong shares were marginally firmer in afternoon trade, with dealers saying the market lacked direction and was awaiting the US jobs data and the Fed's interest rate decision next week.
   
At 3.26 pm the Hang Seng index was up 15.16 points or 0.09 pct at 17,047.91.
   
In mainland China, A-shares in Shanghai and Shenzhen closed mixed on renewed liquidity concerns in thin trade, with metal issues and food companies in particular losing ground, dealers said.
   
The Shanghai A-share Index rose 0.07 points or 0.01 pct to 1,682.83 and the Shenzhen A-share Index was down 1.62 points or 0.39 pct at 414.26.
   
Seoul shares closed slightly lower in thin trade, with investors remaining cautious ahead of the release of US jobs data and interest rate-setting meetings both domestically and in the US next week, dealers said.
   
The July consumer expectations index, which measures sentiment six months in advance, dropped to 94.3, staying below the benchmark 100 for a third month. A reading below 100 indicates that more people are pessimistic about the economic outlook than those expressing optimism.
   
The KOSPI index closed down 3.06 points or 0.24 pct at 1,292.05, after moving between 1,304.77 and 1,288.03.

Asian Bourse Round-Up

For a full a full list of closing figures, click here

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Pound up sharply on surprise BoE rate hike; Euro up on Trichet comments

LONDON - The pound remained sharply higher after the Bank of England's decision to hike interest rates by 25 basis points to 4.75 pct surprised the market, which had been expecting rates to be left on hold.
   
The news provoked a sharp reaction on currency markets. Though there had been some talk of a move today, most expected that the central bank would hold fire until the autumn, especially as the minutes to last month's Monetary Policy Committee meeting were viewed as fairly dovish.
   
Following the decision, the pound rose as high as 1.8916 against the dollar, its highest level since mid-May, while the euro dropped to a two-and-a-half-month low against the UK currency of 0.6772.
   
"Not surprisingly, sterling has spiked higher on this news," said Daragh Maher at CALYON.
   
In its accompanying statement, the BoE said the hike came amid a background of "firm growth, limited spare capacity, rapid growth of broad money and credit, and with inflation likely to remain above the target for some while".
   
The euro gained against the dollar meanwhile, firstly benefiting from the fallout from sterling's gains against the dollar after the BoE decision, before pushing higher still in the afternoon after European Central Bank president Jean-Claude Trichet suggested further euro zone interest rate rises are likely.
   
The ECB raised interest rates today by 25 basis points to 3.00 pct, entirely as expected by the market. However, in his accompanying press conference, Trichet said further rate hikes may be warranted depending on the outcome of upcoming data and that the ECB will monitor risks to inflation "very closely".
   
"The whole tone of the conference suggests that the ECB is looking at another rate rise, probably in October," said 4CAST currency analyst Chris Furness.
   
Overall, given that the market was already expecting a hawkish tone to the speech, Trichet's comments were "balanced but on the hawkish side" -- enough for the euro to move higher but not sufficient to spark panic in the market and push the currency out of its recent trading ranges, he said.

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Gold comes under pressure from stronger US dollar

LONDON - Gold prices fell, reversing two days of gains, as the dollar strengthened against the major currencies while oil prices receded on news tropical storm Chris has weakened.
   
At 12.19 pm, spot gold, which earlier hit a low of 644.40 usd an ounce, was quoted at 646.00 usd, down from 652.25 usd at the time of the Comex market close in New York yesterday.
   
Other precious metals were also weak. Spot silver was at 12.06 usd against 12.20 usd at yesterday's close, platinum was at 1,240.50 usd against 1,246.00 usd while palladium was at 322.50 usd against 322.00 usd.
   
Barclay's Capital analyst Costanza Jacazio said the market was consolidating following two days of strong gains, adding the stronger US dollar was pressuring gold.
   
Gold usually moves counter to the dollar. A stronger dollar pressures gold as it lessens the appeal of the precious metal as an alternative investment or hedge against inflation.
   
"Technical indicators remain positive pointing to 665 usd as the main resistance level but having said that, a pause is something we could expect before reaching those levels," said Jacobs.
   
Copper off day highs but underpinned by looming strike at Escondida

LONDON - Copper prices steadied after spiking earlier on news workers at Chile's Escondida, the world's largest copper mine, had rejected the management's latest wage offer.
   
At 1.35 pm, LME copper for three-month delivery was at 7,795.00 usd a tonne, down slightly from 7,815.00 usd at the close yesterday, while nickel was down at 24,850.00 usd a tonne against 25,600.00 usd.
   
Other metals were also weak. Zinc was at 3,385.00 usd against 3,420.00 usd, lead was at 1,115.00 usd against 1,145.00 usd, aluminium was at 2,515.00 usd against 2,555.00 usd and tin was unchanged at 8,350.00 usd.

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